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What is Insurance? Features, Terms, Benefits, Types, and Metrics Explained
There are always surprises in life. Some surprises are great, but some are nasty and will hurt your pocket. Imagine yourself driving on a highway when, all of a sudden, there is an accident and your vehicle breaks down. In such a situation, it is natural to be concerned about how to resolve the issue. This is where insurance comes in; if you have coverage for your vehicle, you can get repairs done without having to pay for them.

The blog will guide you through the world of insurance, helping you pick the best coverage for your needs and grasp the fundamentals.

Overview on Insurance

An insurance policy is a financial contract that shields you against unforeseen financial losses between two parties.

The insurance provider charges a premium to cover a person or entity against certain risks, such as mortality, accidents, medical emergencies, etc. This ensures that the insured party can avail of the provider’s insurance benefits in the case of a loss.

For example – Mr. A is driving to work, and en route, he gets into an accident that damages his vehicle. If Mr. A had auto insurance, he would be entitled to a claim for the total amount of compensation from the insurance provider. In order to get this amount, Mr. A would have needed to pay a premium at the start of the policy’s term or length.

Read Also: Prize Indemnity Insurance

Features of Insurance

1. Having an insurance policy allows you to mitigate the risk.

2. You can transfer the financial losses to the provider by paying a small amount as a premium.

3. You can live a calm life and feel at ease knowing that you will be compensated in the event of an accident.

4. There are certain things, like cars, for which you are required to have insurance as it is made mandatory by authorities.

Terms of Insurance

1. Policy – The written agreement between the policyholder and insurer.

2. Insurer – The insurance company that will be covering your risks.

3. Policy Holder – The person who took the policy from the insurance company.

4. Premium – The amount that you are required to pay to the company to keep the policy effective.

5. Policy Term – This will be referred to as the effective period, expressed in terms of the number of years for which the insurance provider will offer coverage.

6. Sum Assured – The highest sum of money that you will receive in the event of unanticipated events.

7. Claim – This is regarded as a formal request for reimbursement/payment for expenses incurred after the event.

How does Insurance work?

The insurance firm takes premiums from several clients, covers them for particular risks, and divides the risk among them.

Let’s use home insurance as an example. In a given area, there are 100 houses with a value of 1 lakh each, of which 2 burn down every year. All of the homeowners obtained insurance from a company and had their homes covered; therefore, the insurance company collected a total of about 10 lakhs in premiums. Should two of the approximately 2 lakhs worth of houses burn down in a given year, the company would pay the homeowners 4 lakh and make a profit of 6 lakhs.

In a similar vein, the policyholder would have the assurance that should their home burn down; they would receive a settlement of two lakh rupees for a premium of just 10,000 INR.

Benefits of Insurance

There are lots of benefits to buying insurance, some of which are mentioned below-

1. Insurance shields you from life’s uncertainties and guards against financial losses brought on by many unforeseen circumstances.

2. Few insurance policies offer both life insurance and investment rewards, giving you the chance to achieve your most important life goals in addition to receiving insurance coverage.

3. Unpredictable events could result in large losses that you would have to pay out of pocket, which could negatively affect your financial situation. But insurance allows you to cushion yourself.

4. You can feel more at ease knowing that your insurance provider will provide support in the form of compensation in the event of a loss.

5. Insurance plans also come with tax benefits, as you can take a deduction for life insurance u/s 80(C) and for health insurance, you can claim a deduction u/s 80(D).

Types of Insurance

In India, insurance is divided into 2 different categories.

1. Life Insurance

2. General Insurance

Life Insurance

This kind of insurance safeguards your loved ones by providing either one-time or periodic payments after the event of your death. This insurance helps your family survive after your passing.

There are several types of life insurance. Some of them are:

1. Term Life Insurance – This insurance ensures that in the event of your death, the designated beneficiary receives an agreed-upon amount from the insurer.

2. Whole Life Insurance – The insurance covers an individual’s life to the age of 100 and is sometimes referred to as a standard life insurance coverage.

3. ULIP Plans – The Unit Linked Insurance Plan, or ULIP, offers both investing and insurance benefits. A portion of your contribution is used to cover your life insurance, while the remaining amount is invested in securities linked to the market.

General Insurance

All other forms of insurance, excluding life insurance, are categorized as general insurance since they shield your finances from losses brought on by events that involve home, car, health, or other property. They also go by the name of non-life insurance policies.

There are several types of general insurance. Some of them are:

1. Health Insurance – When a person purchases health insurance, the insurance company pays for their medical expenses up to the sum assured, which is determined at the time the policy is taken out.

2. Motor Insurance – This type of insurance offers cash support if your vehicle — a car, bike, etc.— is stolen or damaged.

3. Home Insurance – As the name implies, home insurance protects your home’s infrastructure and possessions from harm and devastation, including natural and man-made calamities.

4. Travel Insurance – If you have travel insurance, you will be protected against any mishaps that happen during your travel, like misplaced bags, cancelled flights, etc.

How to Choose an Insurance Provider?

1. The most important factors to consider when choosing an insurance company are the features and benefits that they are offering.

2. You must obtain estimates from multiple insurance providers and evaluate them; nevertheless, you shouldn’t choose the least expensive option without also considering the value proposition.

3. Customer service is another crucial component to take into account. When filing a claim, you should pay close attention to how quickly and responsively their team responds to your inquiry.

4. Before purchasing any insurance policy, you should research the company’s past claim settlement ratio; the greater the ratio, the more likely the insurer will pay the claim without being denied.

5. Although negative reviews or complaints filed to the insurance business are often disregarded, they may provide insight into which firms are worth considering.

6. When purchasing insurance policies, it is important to consider an insurance company’s size and financial standing. In the event of a larger claim, a company with weaker financial standing may be unable to reimburse the amount due.

Read Also: Concurrent Insurance

Key Comparison Metrics of Insurance Providers

1. Gross Written Premium – It shows the entire amount of the premium that the insurer wrote before commissions and reinsurance costs are subtracted.

2. Claim Settlement Ratio – This displays the percentage of claims that the insurance company has settled relative to the total number of claims that it has received.

3. Policy Renewal Rate – This indicates the percentage of policyholders who choose to renew their insurance with the same insurance company.

4. Average Time to Settle a Claim – The shorter the time taken to process the claim, the more advantageous it is to the insured.

Conclusion

One of the most essential advantages of insurance is that it protects your money after an unforeseen event in exchange for a nominal premium. However, you must take into account several aspects when choosing an insurance provider, including the claim process, customer service, and policy features.

Frequently Asked Questions (FAQs)
1. What is the purpose of insurance?
  The primary goal of insurance is to lessen the burden of monetary loss in exchange for a minimal premium payment.
2. What are the types of insurance?
  There are two primary categories of insurance: general insurance and life insurance.
3. Which organization manages the workings of the insurance industry?
  The Insurance Regulatory and Development Authority of India, or IRDAI, is responsible for overseeing the general operations of the insurance sector.
4. What is IMF in Insurance?
  IMF stands for Insurance Marketing Firm, which is a distribution channel established by IRDAI.
5. Is there any tax benefit available in insurance?
  Yes, insurance plans offer several tax benefits. For example, you can deduct your life insurance payments under Section 80(C) and your health insurance premiums under Section 80(D).

April 16, 2024

What is FIRE in Finance? Full Form, Features, Types, and Formula Explained

Are you tired of your daily grind? Feeling trapped by your income? You are not alone. Millions crave financial freedom and the chance to break free from the traditional 9-5 job. But is early retirement possible?

This blog will dive deep into the world of FIRE and explore the sacrifices needed to achieve financial independence and early retirement.

Overview

FIRE stands for “Financial Independence Retire Early”. According to this theory, saving a bigger percentage of income and making prudent purchases throughout one’s earning years are the best ways for someone to retire early—typically in their 30s or 40s.

A person is typically expected to retire at age 60, but recently, people have a longing to retire early. The idea inspires many to save money to retire early and live a longer life.

Features

The major features of FIRE are as follows –

1. The concept focuses on retirement earlier than traditional retirement age.

2. Individuals should save a significant percentage of their income—more than 50%, on average.

3. It is recommended that savings are invested aggressively in high-yielding asset classes like bonds and stocks.

4. Implementation of the idea requires a minimalistic lifestyle, which means an individual is required to spend less and find cheaper alternatives to their habits.

5. Proper financial planning is required to achieve early retirement.

6. Discipline in saving funds is of paramount importance

Types of ‘FIRE’

The 3 major types of FIRE approaches are explained below-

1. Lean FIRE

Lean FIRE assumes a low spending rate after retirement. This means that you’ll have to sacrifice many of your aspirations and live within your means. If you’re willing to make those sacrifices, then Lean FIRE might be the right option for you because it is the fastest way to achieve your goals.

2. Fat FIRE

If you dream of international travel, lavish vacations, and shopping, Fat FIRE is the way for you. It allows users to save aggressively during their careers to have above-average retirement funds.

3. Barista FIRE

Individuals who follow the FIRE method are not interested in working a 9–5 job in the long term; instead, they engage in part-time work and live a modest lifestyle after retirement. To enjoy the freedom of work and the financial security of retiring early, many attempt to locate a less stressful job or work part-time after retirement.

Read Also: Military Wealth Management

How does ‘FIRE’ work?

If you intend to retire early, you must determine how much money you will need to continue living the way you do when you are retired. This will assist you in deciding when you can retire.

For example, a person with an annual income of 7 lakhs who intends to retire at 45 must have a different FIRE plan than someone with an annual income of 12 lakhs who wants to retire at 40.

FIRE strategy requires a unique approach, which typically includes cost-cutting and aggressive investing. One way to save costs is to purchase second-hand goods rather than brand-new ones or to spend on necessities only rather than wants. Individuals must set aside between 50 and 70 percent of their income for savings and use those funds to invest in various higher-yielding asset types, including bonds and stocks.

In addition to these two things, you must review your tax strategies to reduce the amount you pay for tax on your income.

To learn about your required retirement corpus, explore our Retirement Planning Calculator here.

Method of Calculating ‘FIRE’

1. To calculate FIRE, you need to determine your in-hand annual income first.

2. Next, you must determine your FIRE number using the widely accepted 4% thumb rule, which states that to maintain a 4% withdrawal rate, you must amass assets equal to 25 times your yearly expenses. For example – If your annual expenses are 5,00,000 INR, then your FIRE number would be 1,25,00,000, which is 25 times your annual expenses.

3. Then, you must adjust the FIRE number to include the impact of inflation.

4. The next step is to figure out how long it will take you to reach FIRE by factoring in your current savings rate, expenses, and investment return.

5. The next stage would be to decide which asset class to invest in.

6. Your portfolio must be periodically examined to assess investment performance and determine whether your FIRE objective is on track.

Advantages

FIRE offers several advantages to those who use it for their retirement planning, a few of which are mentioned below.

1. It gives someone the ability to feel adaptable and free to pursue the kind of life they desire.

2. An individual can have more time to follow their passions and hobbies when they retire early.

3. Individuals who are financially independent and have a solid financial plan lead stress-free lives free from financial uncertainty.

4. A person can leave a concentrated legacy through FIRE. Early retirement also enables one to spend more time with one’s loved ones.

Disadvantages

1. FIRE is vulnerable to uncertain and erratic returns on your investments; if the actual returns do not align with your retirement plan, you may not be able to secure enough money to retire.

2. It focuses heavily on giving up short-term needs in favor of early retirement and long-term financial security, which can cause mental dissatisfaction among users.

3. The growing cost of healthcare is not considered while accounting for retirement. This exposes the user to vulnerability during periods of a health crisis.

4. Inflation can erode purchasing power and reduce the value of your retirement savings. Hence, it is important to regularly modify the FIRE number in accordance with updated inflation figures.

Conclusion

The FIRE technique is a valuable strategy for early retirement and post-retirement financial independence. If you want to retire in your 40s, you should plan your retirement based on your lifestyle and income. You can apply any of the FIRE types to plan your financial future for yourself and your family. Furthermore, since retirement is a very personal choice, there is no one correct way to plan it; hence, you should do what is practical for you.

Frequently Asked Questions (FAQs)

What does FIRE stand for in financial terms?
FIRE refers to “Financial Independence Retire Early”.
What is the FIRE method?
It’s the process of making significant investments and savings during your formative years so that you can retire early.
How do you calculate your FIRE number?
To calculate your FIRE number, you must calculate your current annual expenses and multiply them by 25. This FIRE formula is derived using the 4% rule as a basis.
How can I plan my retirement by FIRE?
With the FIRE strategy, you can reduce your spending, save more money, and invest in high-yielding asset classes to prepare for retirement.
Is FIRE achievable for everyone?
Most people can achieve it because it just takes discipline, dedication, and smart financial planning. Your ability to achieve FIRE depends on your income level, your spending habits, and your ability to generate higher returns.

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

April 16, 2024

Explainer on Private Equity vs Venture Capital: Differences, Process, and Famous Firms

Did you ever wonder what the terms ‘venture capital’ and ‘private equity’ meant? This blog will explain these two investment powerhouses and their key differences.

So, whether you are a curious entrepreneur or an aspiring investor, this guide will shed light on the fascinating worlds of venture capital and private equity.

Overview of Private Equity vs Venture Capital

Private Equity

Private Equity refers to investments made in companies that are not publicly traded on stock exchanges. These firms raise capital from investors like pension funds, insurance companies, and high-net-worth individuals. The capital is then used to buy stakes in private companies, to improve their operations and profitability before selling them at a profit.

Process

The investment process of private equity firms is as follows,

PE firms raise money from investors by creating a private equity fund. This fund has a specific investment strategy and a finite lifespan, generally 6-7 years.
Once the fund is capitalised, the PE firm starts looking for investment opportunities. They look for companies with strong growth potential, sustainable competitive strength and a good management team.
If a business is thought to be worth investing in, the PE firm will conduct thorough due diligence to analyse the company’s financial health, business model and market position.
If the due diligence is satisfactory, the PE firm will negotiate the terms of investment with the company’s owners which involves acquiring a controlling stake in the company and providing growth capital.
Once the investment is made, the PE firm will work with the company’s management team to improve its operations and profitability. This may involve implementing new strategies, restructuring the business, or making acquisitions.
The PE firm’s ultimate goal is to exit the investment within the firm’s lifespan, which can be done through an IPO, a sale to another private equity firm, or a strategic sale to a trade buyer.

Venture Capital

Venture capital is a type of AIF (Alternative Investment Fund) that provides funding for startups and young companies with high growth potential. Unlike private equity, which focuses on established businesses, VC Firms essentially bet on ideas and innovation.

VC firms invest in startups at several stages,

Seed Stage – The earliest stage of funding, often providing capital to help develop a prototype or test a new concept.
Early stage – VCs fund startups that are validating their product-market fit and starting to gain traction.
Growth Stage – Investing in companies that are looking to expand their operations.

Process

The investment process of Venture capital is as follows

– VC Funds raise money from limited partners (LPs) such as pension funds, insurance companies, and HNIs. These funds are used to invest in multiple startups while spreading out the risk.

– VC investments are generally smaller than PE deals. These firms receive equity ownership in the startup. This means that they share the profits of the company if successful.

– VC firms have a long investment horizon, i.e. 5 to 10 years, and look for an exit through either acquisition or IPO.

Private Equity vs Venture Capital

Private Equity targets established, mid-stage or mature companies with existing revenue and profits and looks for businesses with turnaround potential. At the same time, venture capital often backs early-stage startups with high growth potential before they even have a proven product or market.
Private Equity invests in more considerable sums and takes the majority stake in the companies they target. On the contrary, VC makes smaller investments spread across multiple startups to diversify risk. Since they are funding unproven ventures, these investments carry a higher risk of failure but are also eligible for high returns.
While VC provides guidance and mentorship to young companies but generally does not take an operational role, PE firms are actively involved in managing the companies and bring in operational expertise to help restructure, streamline operations and improve the bottom line.

Famous Firms

Below is a list of some of the famous Venture Capital and Private Equity firms in India.

Venture Capital Firms

Sequoia Capital – is one of the most prominent VC firms globally. It has been instrumental in funding over 400 Indian startups, including Zomato, Ola, Oyo Rooms, BYJU’s, etc.
Accel Partners – is another leading VC firm that has backed Indian startups like Flipkart, Myntra, and Swiggy at the seed, early, and growth stages. It has offices in California and San Francisco, and it has additional operating funds in London, India, and China. Accel was founded in 1983 by Arthur Patterson and James R. Swartz.
Matrix Partners – is focused on early-growth stage companies. Matrix Partners has funded successful startups like Delhivery, Ola, etc. The firm was established in 2006.
Kalaari Capital – it is an early-stage venture capital firm established in the year 2006 by Vani Kola and has been behind the success stories of several Indian startups like Snapdeal.

Private Equity Firms

Blackstone India – A global PE giant, Blackstone invests across multiple sectors in India, including real estate, healthcare and consumer goods. In 1985, Peter G. Peterson and Stephen A. Schwarzman established Blackstone.
Warburg Pincus – a private equity firm that has been investing in India since the 1990s. Some of Warburg’s investments include Ecom Express, Havells, Bharti Airtel, etc.
Bain Capital – another private equity giant that has been investing in companies since 1984. It provides capital solutions to entrepreneurs, companies, and asset owners. It supports innovative businesses and accelerates growth.
Carlyle Group – is a global PE major. The group focuses on mid-market and buyout investments in India. The firm was founded in Washington DC in 1987 by Bill Conway and David Rubenstein and has 28 offices across four continents.

Conclusion

Private Equity and Venture Capital are both essential parts of the financial ecosystem. However, they serve distinct purposes. PE firms help existing businesses thrive, while VC firms nurture the next generation of industry leaders. PE firms act like business doctors, stepping in to improve and unlock the growth potential of established companies, while VC firms are startup champions, fuelling innovation by investing in companies at a nascent stage with disruptive ideas.

Frequently Asked Questions (FAQs)

What is the difference between Private Equity and Venture Capital?
PE invests in established firms for operational improvement, while VC backs early-stage startups.
Which is riskier, private equity or venture capital?
Venture capital is generally riskier as startups have fewer track records. Private Equity targets companies with a proven track record that is less risky.
How involved are PE and VC firms in the businesses they invest in?
PE firms are actively involved in managing the companies they own. VC firms provide guidance but do not participate in operational roles.
How long do VC and PE investments generally last?
Venture Capital investments last 5-10 years, and private equity investments last 3-5 years.
How can my startup become eligible for VC funding?
A strong team, a scalable business model, and a massive market opportunity are all vital in raising funds from VC firms.

April 15, 2024

Hero MotoCorp Case Study: Business Model and SWOT Analysis

You must have driven a Hero motorcycle if you hail from India. But did you know this powerhouse of the two-wheeler industry started as a joint venture?

Let us dive into the fascinating history of Hero MotoCorp, a company that rose from collaboration to become one of the world’s largest motorcycle companies.

Overview of Hero MotoCorp

Hero MotoCorp is a leading Indian multinational motorcycle and scooter manufacturer based in Delhi, India. It is the world’s largest two-wheeler manufacturer by volume and holds a significant market in India of around 46%.

The company’s history can be traced back to1984. Hero Moto was founded as a joint venture between Hero Cycles, an Indian bicycle manufacturer, and Honda Motor Company of Japan. This collaboration aimed to leverage Hero’s market knowledge and Honda’s technological expertise.

The joint venture proved successful, and Hero Honda became a dominant player in the Indian two-wheeler market. They were known for introducing fuel-efficient and reliable motorcycles to the Indian audience.

A major turning point came in the year 2010 when the joint venture between Hero and Honda came to an end. Hero MotoCorp then emerged as an independent entity. Since then, they have moved beyond just being linked with Honda and established themselves as a strong independent brand entering markets like Bangladesh, Sri Lanka, and Nepal.

Business Model of Hero MotoCorp

Hero MotoCorp is a public company that uses a business-to-consumer (B2C) model to manufacture motorcycles, scooters and parts. The company’s business model includes designing, developing, and manufacturing a wide range of fuel-efficient and affordable motorcycles that caters to the needs of the Indian and global markets.

The primary revenue comes from the direct sale of two-wheelers to consumers. The company generates additional revenue through service centres that provide maintenance, repairs, and spare parts for their vehicles.

Their extensive dealership network plays an important role in reaching customers across the country.

Product Portfolio of Hero MotoCorp

Company hails numerous vehicles in its portfolio ranging from standard to premium motorcycles. Further, with the recent introduction of an electric vehicle (EV), the company can provide customers with an unmatched segment of two-wheelers that are skilfully designed to meet customers’ demands and preferences in terms of features, styles, and price ranges.

Some of the company’s products are listed below:

Scooters – Pleasure+, Maestro Edge, Duet, HF Dawn, HF Deluxe, Splendor+, Passion Pro, Ignitor, Achiever, Destini 125 XTEC, etc.
Premium Motorcycles – Xtreme 200S, XPulse 200T, Xtreme 160R, XPulse 200, Hunk 160R, Thriller 160R, Harley Davidson X440, etc.

With the introduction of Vida, an electric scooter, the company ventured into a new area of electric mobility during the FY 2022-23. Intending to provide clean mobility solutions to consumers worldwide, Vida boasts features that set the industry standard and promise a fantastic driving experience, simplicity, and performance.

Furthermore, the Hero Tech Centre Germany (HTCG) and Centre for Innovation & Technology (CIT), Jaipur campuses offer top-notch, integrated facilities for the design, development, testing, and validation of innovative products.

Did you Know

In the year 2020, Harley Davidson and Hero MotoCorp announced a strategic partnership to cater to the Indian market. And Hero produces the first motorcycle for Harley Davidson named X440 in July 2023.

Financial Statement Analysis of Hero MotoCorp

Key Highlights (FY 2022-23)

47% domestic motorcycle market share.
57,000+ two-wheelers sold to state governments.
9.50 million+ annual production capacity (units) across 8 manufacturing facilities.
Worldwide presence in 47 countries.

Balance Sheet

Key Metrics	FY 2023	FY 2022	FY 2021
Key Metrics	FY 2023	FY 2022	FY 2021
Non-Current Assets	14,226.35	11,599.06	11,208.26
Current Assets	9,036.79	10,114.96	10,952.79
Total Equity	16,705.09	15,782.92	15,198.43
Non-current Liabilities	934.07	858.72	852.4
Current Liabilities	5,623.98	5,072.38	6,110.22

Income Statement

Key Metrics	FY 2023	FY 2022	FY 2021
Revenue from Operations	33,805.65	29,802.38	30,800.62
Total Income	34,370.81	29,802.38	31,380.47
Total Expenses	30,496.25	26,552.25	27,480.09
Profit After Tax	2,910.58	2,473.02	2,964.20

Statement of Cash Flows

Cash Flows	FY 2023	FY 2022	FY 2021
Net cash from Operating activities	2,579.08	2,020.27	4,172.70
Net cash used in investing activities	-468.81	-151.94	-2,209.90
Net cash used in financing activities	-2,040.58	-1,938.87	-1,941.49

Key Performance Indicators

Particulars	FY 2023	FY 2022	FY 2021
Sales Volumes (In lakhs)	53	49	58
Earnings Per Share (in INR)	146	124	148
EBITDA (INR cr)	3,986	3,369	4,019
Return on Average Equity	17.92	15.96	20.21

SWOT Analysis of Hero MotoCorp

Strengths

The company enjoys a long-standing reputation and goodwill for fuel efficiency and affordability in the two-wheeler market.
Company’s vast network of over 6,000 dealerships and service centres across India ensures convenience after-sales support for customers.
With years of experience, company established strong manufacturing capabilities to produce vehicles on large scale while maintaining top notch quality standards.

Weakness

Compared to its competitors, Hero MotoCorp’s product range might be seen as less diverse, particularly outside of commuter motorcycles.
Their current focus on traditional fuel-powered vehicles might make them vulnerable in luxury vehicle segment.
While a leader in India, Hero MotoCorp’s presence in developed markets is minimal compared to global competitors.

Opportunities

The rising demand for two-wheelers in India presents a significant growth opportunity for the company.
Hero MotoCorp’s venture into the e-vehicles can attract new customers and potentially increase profit margins.
Increasing their presence in established and emerging markets can lead to significant growth.

Threats

Company relies on several suppliers for its components used in manufacturing including domestic and international suppliers; any change in govt. policy such as change in GST rates or hike in import duty can be a potential threat for the company.
Production shortfalls caused by supply chain disruptions may cause fall in sales and eventually shrink profit margins.
Cyberattacks may cause important data loss, unauthorized access to data systems, and other intrusion-related incidents.

Conclusion

Hero MotoCorp’s journey from a joint venture to one of the world’s largest two-wheeler manufacturer is a testament to its focus on affordability and reliability. The company enjoys a brand reputation and an extensive dealership network, giving it a competitive edge in the market.

Furthermore, the Indian two-wheeler market is expected to grow consistently, driven by rising disposable income of Indians. This will act as a catalyst for Hero MotoCorp’s domestic sales.

Company’s expansion inato the premium segment and development of EVs will position them well for future market trends. However, their ability to navigate competition and rising component costs will be crucial for their long-term success.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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2	Swiggy Case Study: Fundings, Business Model, Financials, and SWOT Analysis
3	Rupay Case Study: Features, Timeline, Types, Growth, and Comparison
4	Gift City Case Study: Timeline, Management, and Development
5	IRCTC Case Study: Business Model, Financials, and SWOT Analysis

Frequently Asked Questions (FAQs)

When was Hero MotoCorp founded?
It was founded in the year 1984 as a joint venture between Hero Cycles and Honda, becoming independent in 2010.
Is Hero Moto a good investment option?
The answer to this question completely depends on your investment style and risk profile.
What are some popular Hero MotoCorp models?
Splendor, Passion, and Honda-era models like the CD series are some popular motorcycles manufactured by Hero MotoCorp.
Is Hero MotoCorp a listed company?
Yes, Hero MotoCorp is a listed company and is traded on stock exchanges, i.e., NSE and BSE.
In how many countries Hero MotoCorp has presence in?
As of April 2024, Hero MotoCorp has presence in 47+ countries.

April 15, 2024

Swiggy Vs Zomato: Business Model, Marketing Strategies, Strengths, and Financials Compared

Craving a delicious meal but stuck in the office? Your hunger solution is just a few taps away, courtesy of food delivery giants Zomato and Swiggy. However, when it comes to the Zomato vs Swiggy debate, choosing between the two can be quite a challenge.

This blog will explore the ‘bitter-and-sweet’ battle between Swiggy and Zomato, their strengths, unique features, financial comparison, and company overview.

Swiggy Vs Zomato Overview

Swiggy

Swiggy is an Indian online food ordering and delivery company. In 2010, Sriharsha Majety and Nandan Reddy founded Bundl, an e-commerce website for courier services within India, but it failed. Majety and Reddy then teamed up with Rahul Jaimini and launched Swiggy, a company focusing on online food delivery.

Back then, several startups struggled in the food delivery market in India. In 2015, Swiggy started operations in Bengaluru and quickly gained traction. They secured their first round of funding in May 2015 and launched their app around this time. It currently operates in over 500 Indian cities and provides on-demand grocery deliveries under the name Instamart and a same-day package delivery service called Swiggy Genie.

Zomato

Similar to Swiggy, Zomato is an Indian food delivery company and restaurant aggregator. It offers food delivery options from partner restaurants in over 1,000 Indian cities and towns. Zomato was founded in 2008 by Deepinder Goyal and Pankaj Chaddah and was originally known as “Foodiebay.” It has now grown to employ more than 1,000 people and has a presence in 19 countries. It has become India’s first food-tech unicorn and the first food-tech brand to go public.

Swiggy Vs Zomato Business Model

Swiggy

Swiggy’s business model is based on hyper-local, on-demand food delivery and operates on the following models,

1. Dual Partnership Model: Swiggy works with restaurant partners, who prepare the food for customers, and with delivery partners, who pick up restaurant orders and deliver them to customers.

2. Commission: Swiggy charges a 15-25% commission on the total order bill. The commission depends on the number of orders and the restaurant’s location, among other factors. Depending on distance and order value, customers are charged a delivery fee on top of the restaurant bill.

Zomato

Zomato, on the contrary, has two core B2C (Business-to-customer) offerings, food delivery and dining out, along with the business-to-business (B2B) offering, Hyperpure, which connects restaurants in India directly with fresh produce sourced from local farms to ensure the highest quality ingredients.

Other parts of the business include Zomato Pro, a customer loyalty program that includes both food delivery and dining out.

The company generates most of its revenue from food delivery and the related commissions from restaurant partners for using the platform. Restaurant partners also spend on advertisements on the platform.

The food delivery business thrives on a three-way partnership.

Customers – who conveniently order meals from their favourite restaurants.
Delivery Partners – who ensure that the food gets delivered promptly and safely to the customers.
Restaurant Partners – who offer their menus on the platform while trying to reach a wider audience and increase sales.

Furthermore, the restaurant receives the total order value and packaging charges after deducting the commission and discounts it offers. The delivery partner receives 100% of tips and delivery fees from customers, and the company also provides them with an additional incentive payment.

From browsing menus and reading reviews to booking a table and paying the bill, Zomato streamlines your entire dining-out experience.

Swiggy Vs Zomato Marketing Strategy

Swiggy

Swiggy cleverly targets the young and tech-savvy demographic in India, typically aged 18-35. These individuals use smartphones extensively and rely on online platforms for convenience. This includes students, working professionals, and families who might want to skip cooking for multiple reasons.

The company tries to reach its target audience through social media platforms like Instagram. It uses these platforms to share mouthwatering food pictures, create interactive content and giveaways to boost engagement, and partner with social media influencers.

Zomato

Zomato focuses on paid marketing to keep the platform buzzing. The company collaborates with restaurant partners to create engaging campaigns across online and offline channels, including search engines, social media, TV & Radio ads, and eye-catching outdoor displays. This comprehensive approach attracts new customers and keeps the existing ones happy and satisfied. Zomato is also known for its engaging and witty social media presence.

Read Also: Blinkit vs Zepto: Which is Better?

Swiggy Vs Zomato Strengths

Swiggy

Swiggy boasts a larger delivery fleet, resulting in faster deliveries. They have a wider reach in tier-2 and tier-3 cities, focusing on its core food delivery service and integrating other services like grocery delivery within the same app.

Swiggy has recently ventured into the instant delivery business with its brand, Swiggy Instamart. This is an in-grown brand, and thus, it has a smaller network than Zomato’s Blinkit.

Zomato

Zomato offers a more comprehensive user experience, including user reviews and ratings that can help you decide where to order from. They also have a wider selection of restaurants as partners. Zomato goes beyond just food delivery with its recent acquisition of Blinkit, an instant delivery app.

Swiggy Vs Zomato Financial Highlights

Balance Sheet and Income Statement

	SWIGGY		ZOMATO
Key Metrics	FY 2023	FY 2022	FY 2023	FY 2022
Total Liabilities	1667.7	1606.2	2144.5	828.1
Total Assets	11477.6	14205.7	21598.7	17327
Revenue from Operations	4653.3	3557.1	7079.4	4192.4
Total Expenses	8886.0	6740.9	8775.3	6200.5
Profit After Tax	-3757.6	3768.1	-971	-1222.5

(In INR Crores)

Even though revenue from operations increased, both companies are currently unprofitable, with losses widening. However, Zomato’s losses have decreased compared to previous years, with a loss of 971 crores in 2023, and the company seems to be on track to profitability.

Cash Flow Statement

	SWIGGY		ZOMATO
Cash Flows	FY 2023	FY 2022	FY 2023	FY 2022
Net Cash Flow from operating activities	(347.67)	(229.39)	(844)	(693)
Net Cash Flows from investing activities	333.95	(1072.76)	457.3	(7937.8)
Net Cash Flows from financing activities	(6.04)	1367.03	(127.4)	8749.8

(In INR Crores)

The graph reveals the cash-burning phase of the two businesses. While both companies burn cash heavily, Swiggy is in a much better position than Zomato due to its better cash flow from the operations state.

Conclusion

Swiggy excels in core delivery services with a user-friendly app and a focus on speed. They’ve expanded into related areas for additional revenue streams. Zomato takes a multi-faceted approach, offering features like restaurant discovery and instant delivery, aiming to be a one-stop shop for all your dining needs. Both Swiggy and Zomato constantly adopt new strategies to stay ahead in the competitive Indian food delivery market. Ultimately, both Swiggy and Zomato offer excellent services, and their constant innovation ensures a dynamic and competitive food delivery landscape in India.

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5	Tata Steel vs. JSW Steel

Frequently Asked Questions (FAQs)

Are Swiggy and Zomato listed companies?
While Swiggy is not listed, Zomato is.
Which delivery company offers the fastest food delivery?
Both Swiggy and Zomato offer standard delivery times. However, Swiggy boasts that it delivers within 30 minutes of placing an order.
Which delivery company should I choose?
It completely depends on your priorities. Before deciding, consider factors like delivery speed, restaurant selection, ongoing deals, and other features.
Why is zomato better than swiggy?
Zomato is often considered better than Swiggy because of its wider restaurant network, more attractive subscription benefits with Zomato Gold, and a strong presence in international markets, which enhances its brand reputation and user trust.
How to increase sales on zomato?
To increase sales on Zomato, focus on optimizing your restaurant’s profile with high-quality photos, detailed menus, and competitive pricing. Encourage positive reviews from satisfied customers, run targeted promotions, and leverage Zomato Ads to improve visibility. Providing quick delivery and exceptional service can also boost customer loyalty and repeat orders.

April 15, 2024

Coal India Case Study: Products, Subsidiaries, Financials, KPIs, and SWOT Analysis

Coal India Ltd. was founded in 1975 and became one of the world’s largest coal producers. The company currently operates in eight Indian states, 138 underground, 171 opencast, and 13 mixed mines. Today’s blog will explain CIL’s market data, financial data, balance sheet, and SWOT Analysis.

Coal India Overview

Coal India Ltd. operates under the ownership of the Ministry of Coal (MOC), Government of India, and is headquartered in Kolkata, West Bengal, India. It is one of the largest government single coal producers across the world.

Company Type	Public Sector Undertaking
Area served	India
Headquarters	Kolkata, West Bengal, India
Industry Type	Production and Mining

Awards and Recognitions

2013 – Corporate Social Responsibility Awards
2012 – Top 250 Global Energy Company Rankings
2012 – Ranked 9th on the Fortune India 500 list.
2020 – Best Strategic Performance Award
2019 – Rural Development Award

Coal India Products Offered

The products and services offered by the CIL are:

Coking Coal:

This high-quality coal is used in coking, steel, energy, and carbon manufacturing. CIL ensures quality coal for daily and industrial purposes.

Non-Coking coal:

This quality of coal is not ideal for coking but can generate electricity for other industrial purposes.

Tar:

It is used for boilers of industrial plants, pharmaceutical industries, powerhouses, oil, dye, making roads, etc.

Coal India Subsidiaries

Some of the company’s subsidiaries are:

Bharat Coking Coal Limited (BCCL)

This company is situated in Dhanbad, Jharkhand. It is mainly engaged in the processing and extraction of coking and non-coking coal.

Central Coalfields Limited (CCL)

Situated in Ranchi, Jharkhand, the company offers coking and non-coking coal mining and distribution. CCL intends to grow and provide energy to the entire area.

Western Coalfields Limited (WCL)

It is situated in Nagpur, Maharashtra. The company has expansive coal mining and processing activities across Maharashtra and Madhya Pradesh. WCL plays an important role in ensuring the fulfillment of the energy demands of these states, increasing industrial growth and developmental projects.

Eastern Coalfields Limited (ECL)

Situated in West Bengal, the company specializes in the extraction of non-coking coal. ECL supplies essential non-coking coal to various industries and power plants in these regions, enhancing the infrastructure and economic stability.

South Eastern Coalfields Limited (SECL)

This coalfield is established in Bilaspur, Chhattisgarh. The company emerges as the largest coal-producing subsidiary. SECL plays a critical role in driving economic growth by offering coal supplies across diverse sectors.

Mahanadi Coalfields Limited (MCL)

Situated in Sambalpur, Odisha, MCL is engaged in providing non-coking coal production. The company contributes substantially to meet both the state’s and the nation’s robust energy demands, energy reliability, and economic advancement.

Northern Coalfields Limited (NCL)

It is in Singrauli, Madhya Pradesh. The NCL holds a crucial position in India’s coal production landscape. The company effectively meets the growing coal needs of the region, highlighting its commitment to enhancing regional energy security and enhancing economic progress.

Coal India Market Data

Market Cap	₹ 280,773 Cr.
TTM P/E	9.56
ROCE	71.56 %
Book Value	₹ 92.89
ROE	56.03 %
52 Week High / Low	₹ 488 / 221
Dividend Yield	5.32 %
Face Value	₹ 10.0

(Data as of 12th April 2024)

Coal India Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Operating Revenue	1,38,506.22	1,09,941.45	90,233.00	96,282.75
Total Income	1,45,111.75	1,13,843.38	94,221.77	1,02,728.90
Total Expenditure	1,01,743.22	85,248.35	71,849.47	74,702.66
Profit before Tax	38,000.81	23,616.28	18,009.24	24,071.32
Consolidated Profit	28,165.19	17,358.10	12,699.89	16,714.19

(All values are in crores)

The table shows significant growth in topline figures, which in turn resulted in a massive profit jump. This jump was made possible by minimising expenses during periods of good topline growth.

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Non-Current Liabilities	80,279.44	75,083.92	70,168.14	65,090.18
Current Liabilities	68,734.64	57,208.51	50,586.90	49,068.29
Non-Current Assets	98,946.95	83,263.27	72,960.16	63,021.92
Current Assets	1,08,082.70	92,845.99	84,753.32	83,687.55

(All values are in crores)

The graph above shows a healthy state of business. The current assets and noncurrent assets were funded primarily by their respective group only.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	35,686.21	41,106.77	10,592.42	4,977.24
Cash Flow from Investing Activities	-23,422.99	-25,714.51	181.90	1,032.84
Cash from Financing Activities	-13,661.14	-13,441.24	-8,453.14	-4,790.87
Net Cash Inflow / Outflow	-1,397.92	1,951.02	2,321.18	1,219.21

(All values are in crores)

For the past few years, the investing activities have seen cash outflows, indicating the company’s strong focus on investing heavily to generate income in the long term. The operating activities also showcase consistent growth.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	71.76	54.38	46.06	73.08
ROE (%)	56.03	43.63	36.99	56.99
ROA (%)	14.68	10.41	8.35	12.13
EBIT Margin (%)	23.17	18.43	16.25	18.83
Net Margin (%)	19.38	15.27	13.48	16.26

Coal India SWOT Analysis

Strengths

Coal India Ltd. enjoys large-scale operations that affect the country’s economic growth.
Coal India Ltd. recorded the highest-ever production and offtake in FY 2023 at 703 million tonnes and 695 million tonnes.
The company maintains its monopoly in the market.

Weaknesses

Coal India Ltd. comes under the operations of the Ministry of Coal. Hence, it is bound to sell coal at a lower rate to power plants.
It is argued that the company’s operations have led to soil erosion, pollution, land degradation, and many other environmental problems.

Opportunities

The company has plans to enhance the infrastructure of rail, solar, and thermal powerhouses.
The company is creating opportunities to diversify into India’s energy sector.

Threats

Rising coal production can lead to degradation, soil erosion, and other environmental concerns.
Any changes in the sociopolitical factor can impact the company’s operations.

Conclusion

Coal is a prominent indigenous energy source in the country. The company is one of the leading coal producers and also contributes heavily to the energy sector. The management expects the demand for steel and power to increase, thus leading to enhanced growth.

Although the business has a proven history of generating value for its customers while maintaining significant margins, it is still recommended that you perform your research before investing.

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Frequently Asked Questions (FAQs)

What is Coal India Ltd’s primary business?
It is an Indian-Based mining company that operates through its subsidiaries in 83 mining areas spread over eight states across India.
What are the risks faced by Coal India?
The company faces environmental and political risks due to its nature of business and affiliation with the central government.
What is the market cap of CIL (Coal India Ltd.)?
As of 12th April 2024, the market capitalization is ₹ 280,773 Cr.
Where is the headquarters of CIL (Coal India Ltd.)?
The headquarters of CIL is situated in Kolkata, West Bengal, India.

April 15, 2024

Are Indian Stock Markets Overvalued?

“The market is overvalued; can I sell my portfolio holdings and then buy later at a lower price?” – This is the most popular question among investors whenever the market reaches an all-time high. Well, there is no straightforward answer to this question as we cannot time the market.

India’s booming stock market has been a source of celebration for many investors since it has been on a bull run in recent years, reaching all-time highs. But this surge has led to a critical question of overvaluation.

In this blog, we will explore the key valuation metrics, and factors responsible for the bull run and try to conclude as to whether the market is overvalued.

Why The Rally?

The Indian stock market has been undergoing a strong bull trend, with indices such as the SENSEX and NIFTY hitting new highs. Not only the SENSEX and NIFTY, but practically all indexes have surged in the last year, with PSUs and Infrastructure stocks leading the way. Even the BSE MIDCAP and BSE SMALLCAP have given nearly 70% returns in the past year.

This surge can be attributed to a confluence of positive economic and market-driven factors:

India’s GDP growth remains positive, with expectations of moderate growth even in the latter half of the fiscal year. This economic strength translates to confidence in the overall business environment.
Inflation seems to be under control, offering some relief after a period of rising prices. This stability fosters a more predictable economic climate for businesses and investors.
Many companies have delivered positive results in recent quarters, which either meet or exceed market expectations. This showcases the healthy corporate performance and investor sentiments.
The US Federal’s Reserve dovish stance, with no further interest rate hikes anticipated, has eased global liquidity concerns. This will benefit emerging markets like India.
FPIs have returned to the Indian markets after a mid-November calm. This renewed interest provides a fresh wave of liquidity and boosts market optimism.

Are Markets Overvalued?

Now, the key question is whether our markets are overvalued. Let’s break it down in simpler terms. To assess whether the Indian stock market is overvalued, we need to analyse key valuation ratios. Below is a breakdown of some key metrics:

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

This ratio compares a security’s current market price to its earnings per share. A high P/E ratio can indicate overvaluation, particularly if it is significantly higher than the historical averages.

2. Market Capitalisation to GDP Ratio

This compares the total market value of all listed companies to the country’s gross domestic product (GDP). A higher ratio could indicate that the market value of listed companies has grown faster and is not in sync with the overall economy of the country.

3. Index Earning Yield & 10-year G-Sec Yield

Index Earning Yield is the average earnings yield of the companies within the Index like NIFTY 50 or Sensex 30. Earnings yield is calculated as the inverse of the P/E ratio. A higher yield indicates that stocks are relatively cheaper compared to their earnings potential or vice-versa.

The 10-year G-sec yield is the annual interest rate the government pays on a 10-year government bond. It reflects the risk-free rate of return as sovereign bonds are considered the safest instrument.

Combining the above two forms the BEER Ratio, also known as the Bonds Equity Earnings Yield Ratio or Gilt-Equity Yield Ratio (GEYR) and is used to compare the relative attractiveness of stocks and bonds in a particular market. A higher E/P relative to G-Sec yield suggests stocks might be more attractive.

Now let us have a quick analysis of the current and historical valuation of key metrics of market valuation

PE Ratio

As of April 2024, the Nifty 50 P/E Ratio is at around 23. Below 20 is considered a decent number as per market experts. The current PE Ratio is higher than the historical average which suggests slight overvaluation in market. The P/E ratio of Nifty 50 crossed 40 in 2021. Keep in mind that the P/E ratio can be affected by earnings of the companies; the higher the earnings, the lesser the P/E ratio.

Market Capitalisation to GDP Ratio

India’s Market Capitalisation accounted for 124% of its Nominal GDP in Dec 2023, compared with a percentage of 104.8% in the previous year, i.e., 2022. The percentage reached at an all-time high of 146.4% in December 2007 and a record low of 23% in December 2021.

The current number, i.e., 124% is significantly higher than the historical average of around 87% which suggests overvaluation in the Indian markets.

While India’s MCAP/GDP ratio is lower than that of some developed nations, it is considerably higher than its historical average.

BEER Ratio

As discussed above, the BEER ratio can be calculated by dividing the bond yield with earnings yield (E/P).

The current 10-year Bond yield and Earning yield of the Nifty 50 index stand at 7.87% and 4.65%, respectively.

Therefore, BEER Ratio = 7.87 / 4.95 = 1.58.

Additionally, if the BEER Ratio > 1, the scenario suggests that bonds might be a more attractive option compared to stocks, i.e., equity markets are relatively overvalued as compared to the bond markets.

Conclusion

To wrap up, the P/E Ratio of broader indices such as Nifty 50 and Sensex 30 is above the historical average, suggesting some potential overvaluation. The market cap to GDP Ratio is at an all-time high, indicating the market capitalisation has grown faster than the overall economy.

Overall, there are mixed signals about the Indian stock market’s valuation. While some metrics suggest overvaluation, they are not at extreme highs. However, the Indian stock market’s valuation remains a topic of debate. The above findings do not indicate that markets are due for an instant correction. An increase in corporate earnings, GDP growth, political stability, etc. can significantly affect the above-mentioned metrics and overall sentiments of the market. A comprehensive analysis considering various factors is important before drawing a definitive conclusion.

“The markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes.

Frequently Asked Questions (FAQs)

Are Indian stock markets overvalued?
There are mixed signals. P/E ratios are above historical averages, but not at all-time highs. The market cap to GDP ratio is at an all-time high, which could indicate overvaluation.
How can I analyse the valuation of the Indian stock market?
Consider factors like the P/E ratio, market cap/GDP Ratio, sectoral valuations, etc.
What is the full form of the BEER Ratio?
BEER Ratio stands for Bond Equity Earnings Yields Ratio.
Where can I find more information on Indian stock market Indices?
One can check out the official websites of NSE (www.nseindia.com) and BSE (www.bseindia.com) for data of various indices.
Apart from valuation ratios, what other factors can we consider when analysing markets?
Consider looking at sector specific valuations, global market conditions, economic growth prospects, RBI policies, Political Stability, etc.

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

April 12, 2024

Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

If you saw something valuable on sale, how would you respond? You’ll probably buy that item without wasting any more time. But what if we told you that there’s also a chance to find something similar in the stock market?

You read correctly – today’s blog will introduce a term called “Cigar Butt Investing.”

Cigar Butt Investing Overview

The CEO of Berkshire Hathaway and legendary businessman, Warren Buffett, applied the cigar butt investment approach.

Cigar Butt Investing, or “Trouble asset investment,” works on the theory that “if someone wants to smoke but doesn’t have any money, they can pick up abandoned cigars on the street and have a few free puffs.”

Similarly, when the market drives a stock down to a particular point and it begins selling at a price significantly below book value, investors would invest a portion of their capital in it and wait for it to rise before selling it for a profit.

This type of investing strategy is extremely risky because the stock price will be under pressure for a long period and may correct to a lower level than anticipated.

Did you know?

Warren Buffett is known to have employed this strategy in his early investing days; later, he switched to value-oriented investing.

Cigar Butt Investing Features

1. It is typically compared to the value investing principle, with a primary focus on stressed businesses that are trading at significantly reduced prices.

2. It usually targets businesses that the majority of shareholders have neglected.

3. These investing techniques have no long-term potential; instead, their primary focus is on making short-term profits.

4. Investing in cigar butt companies is limited to individuals who actively manage their portfolios.

5. Those who are willing to assume a high level of risk and receive higher returns might consider investing in this way.

Cigar Butt Investing Historical Success

Here are a few examples of successful cigar butt picks made by the most famous investor of all time, Warren Buffet, to demonstrate the long-standing efficiency of this method.

One of the most well-known investments made by Warren Buffett is “Western Insurance Securities,” a company whose stock traded below its liquidation value and was valued at a discount to book value of about 55%. While the stock was only trading at $3 per share, the company’s earnings were $20 per share. Buffet later added that the company had excellent management.

Creighton’s PLC was Warren Buffett’s other popular choice. In 2013, the company was trading at a P/E ratio of 4.5x, one-third below liquidation value. He bought the stock because the CEO controls a sizable chunk of the company’s equity, and the company’s balance sheet is steady. The company reached the market P/E of 22.25x after 4 years of growth, yielding an overall return of 640% and an annualized return of 65% for the investor.

Cigar Butt Investing Advantages

1. It gives investors a chance to purchase equities for a substantial discount on their real worth.

2. The strategy allows a risk-taking investor to book profits in the short run.

3. The strategy allows investors to be flexible and opportunistic because they can focus on short-term gains and swiftly spot undervalued opportunities without thinking about long-term positions.

4. Investors can profit from inefficient companies by adopting an aggressive or contrarian attitude, particularly when those companies are unfavorable to investors or are undergoing issues of some kind.

Cigar Butt Investing Limitations

1. Cigar butt stocks are frequently cheap for a variety of reasons, including weak fundamentals, unfavorable market circumstances, etc. As a result, even if the market recognizes their full value, stock prices may not rise.

2. In comparison to general equities, stocks that experience significant declines are regarded as volatile and dangerous investment opportunities.

3. It is not always possible for an undervalued stock to return to its normal price because some stocks experience ongoing losses that ultimately lead to a permanent loss of capital.

How to understand if a discarded Stock has a few puffs left?

Benjamin Graham’s criteria to perform the cigar butt approach is to buy stocks that traded at below 2/3 of the company’s net current asset value per share.

To calculate the net current asset value per share, use the following formula:

Net Current Asset Value/Share = (Current Assets – Inventory – Total Liabilities – Preferred Stocks)/Outstanding Shares

After this calculation, you will know what every shareholder would get if the company were liquidated tomorrow. After making all the calculations, if the number is greater than the stock’s current price, then we can say that the company has some puffs left in the Cigar.

Is Cigar Butt Investing Suitable for Investors?

Identifying stocks that are trading below their liquidation value requires a high level of competence, and finding distressed companies requires extensive study on the part of the investor. Additionally, investing in companies that have already demonstrated a correction carries a high risk. It may result in further corrections for a longer period before the stocks return to their initial value. Therefore, it is not advised that a risk-averse individual engages in Cigar Butt investment.

Is Cigar Butt Investing Same as Value Investing?

Cigar Butt investment is often equated with value investing. However, value investing necessitates identifying a company whose financials are sound and has a high growth potential. Finding weaker companies whose business is likely to collapse and are trading at a significant discount is necessary for cigar butt investing.

Read Also: What is Contrarian Investing?

Conclusion

To sum up, we can conclude that although Warren Buffet employed this strategy when he first started investing but he stopped utilizing it later in life and now focuses more on value investing as these kinds of possibilities are hard to come by under the current market conditions.

Although there are many ways to invest in the market, it is advised that you speak with a financial advisor and take your risk tolerance into account before making any decisions.

Frequently Asked Questions (FAQs)

Who popularized Cigar Butt Investing?
Cigar Butt investing was made popular by Warren Buffet as he used this strategy in his early days of investing, but later he chose to opt for value investing.
Is Cigar Butt investing suitable for all investors?
No, Cigar Butt investing is not suitable for investors who have long-term investment horizons and who don’t want to take risks with their capital and prefer less volatile investments.
What is the risk in Cigar Butt Investing?
The price of an undervalued stock may not return to its normal level because some stocks continue to lose money, which ultimately results in a permanent loss.
What kind of investment style is Cigar Butt investing?
Investing in a cigar butt requires active management on the part of the investor, who must choose stocks and allocate their portfolio accordingly.
Is there any alternative to Cigar Butt investing strategies?
Yes, there are various alternative trading strategies available other than Cigar butt investing. You can use strategies like traditional value investing, growth investing, and index investing.

April 12, 2024

Dr. Reddy’s Laboratories Case Study: Business Model, Financials, KPIs, and SWOT Analysis

Dr Reddy’s Laboratories Case Study was established in the pharma and health segment in 1984. The company currently offers a wide range of pharmaceuticals both nationally and internationally. Today’s blog will include details on market data, KPIs, Financials, and SWOT analysis.

Dr. Reddy’s Laboratories Overview

Dr. Reddy’s Laboratories is one of the leading pharmaceutical companies in the country. It offers a wide variety of pharmaceutical products, active ingredients, and more. The company’s purpose is to treat its customers with innovative products at an affordable price point.

Company Type	Public
Founder	Anji Reddy
Industry	Pharmaceuticals
Founded	1984

Acquisitions and Joint Ventures

Acquisition of Betapharm

Betapharm is one of the leading pharmaceutical companies in Germany. The integration of these companies allows access to each other’s markets, helping to reach more patients and creating a great impact on healthcare.

Joint Venture with FUJIFILM Corporation

This alliance works on increasing advanced technologies to diagnose patients at affordable prices and provide access to healthcare to the expansive population.

Awards and Achievements

2021 – CII Industrial Innovation
2022 – Bloomberg Gender-Equality Index
2021 – Indo-American Chamber of Commerce
2023 – India Risk Management Award

Dr. Reddy’s Laboratories Business Model

Products

The company’s primarily deals in pharmaceutical products such as:

Diagnostics
Biologics
Generic drugs
Over-the-counter drugs
Vaccines.

Business Strategy

The company is known to employ multiple strategies in order to maintain and boost market share. Some of these strategies are:

Biosimilar opportunities: Dr. Reddy Lab. is securing bio-similar substances derived from living organisms to create active drug substances.
Investing in R&D: This strategy has led to the next wave of growth and also helps to get the product pipeline ready for the market.
Sustainability: The company is incorporating initiatives to sustain the health of the planet.
Deliver Future growth: The company is heavily invested in its production game and hopes for an increase in volume and product portfolio.

Market Data

Market Cap	₹ 1,02,725 Cr.
Stock P/E	19.6
ROCE	26.7 %
Current Price	₹ 6,158
Book Value	₹ 1,528
ROE	21.6 %
High / Low	₹ 6,506 / 4,383
Dividend Yield	0.65 %
Face Value	₹ 5.00

(As of 29th March)

Dr. Reddy’s Laboratories Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-20	Mar-20
Operating Revenue	24,669.70	21,545.20	19,047.50	17,517.00
Total Income	25,725.20	22,029.90	19,338.90	18,137.60
Total Expenditure	18,320.70	17,777.80	15,177.60	15,046.60
Profit before Tax	6,048.50	3,061.40	2,883.50	1,885.70
Consolidated Profit	4,507.30	2,182.50	1,951.60	2,026.00

(All values are in crores)

The graph and table indicate a growing trend over the past four years. Revenue grew continuously during this period, and the same was carried over to the profit.

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Non-Current Liabilities	460.9	768.70	871.3	412.40
Current Liabilities	8,572.10	9,765.80	8,103.80	7,214.10
Non-Current Assets	11,263.80	10,682.00	10,997.90	9,406.30
Current Assets	20,316.10	17,787.90	14,535.20	12,599.10

(All values are in crores)

The balance sheet shows the low amount of debt in its capital structure. This is a positive sign as it reduces the risk of financial burden during periods of low profitability.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	5,887.50	2,810.80	3,570.30	2,984.10
Cash Flow from Investing Activities	-4,137.30	-2,638.70	-2,266.00	-492.30
Cash from Financing Activities	-2,686.10	-242.20	-29.80	-2,515.90
Net Cash Inflow / Outflow	-935.90	-70.10	1,274.50	-24.10

(All values are in crores)

Cash flow from operating activities indicates a steady position and consistent investment and financing outflows. Investment outflows result in increased income later in life, and debt repayment outflows demonstrate debt reduction.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	26.22	14.59	15.49	11.12
ROE (%)	21.36	11.93	11.82	13.76
ROA (%)	15.01	8.08	8.21	9.20
EBIT Margin (%)	20.67	12.08	13.87	7.46
Net Margin (%)	17.52	9.91	10.09	11.17

Dr. Reddy’s Laboratories SWOT Analysis

The SWOT analysis of Dr. Reddy’s Laboratories highlights the company’s strengths, weaknesses, opportunities, and threats in the pharmaceutical industry.

Strengths

Dr Reddy’s Laboratories products enjoy strong branding power in the biotechnology and pharmaceutical industries. Due to its higher brand value, the company became popular after Ranbaxy and GSK.
The company had invested time and resources in Research and development to bring new drugs to the market.
The business mainly focuses on its pricing strategy, which means providing products at reasonable prices.

Weaknesses

The pharmaceutical industry is an unpredictable segment.
In the pharmaceutical segment, numerous competitors are making it hard to sustain in the market.
The regulatory frameworks can be complex and time-consuming for the company.

Opportunities

The company can focus on creating a base in emerging markets and improving its product pipeline.
A good investment in Research and development can lead the company to formulate new products.

Threats

The company operates in an extremely stringent regulatory environment, and failure to comply with these norms can invite severe penalties.
The Indian government is heavily pushing generic medicines, and as more and more people become aware of this facility, the company may see an effect in sales.

Conclusion

Dr Reddy’s Laboratories is a well-known pharmaceutical brand with a global identity. The company enjoys its brand value and identity and has made successful acquisitions. It acknowledges new opportunities, reaches potential clients, and has international exposure.

While the company shows great potential, it is important to perform your analysis before investing.

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FAQs

Why is Dr. Reddy’s Laboratories famous?
The company is famous for dermatology, oncology, pain management, urology, and cardiovascular medicines and pharmaceutical products.
who is the current ceo of dr. reddy?
The current CEO of Dr. Reddy’s Laboratories is Erez Israeli. He took over as the CEO in 2020, bringing extensive leadership experience to the company. Before becoming CEO, Erez Israeli held several senior positions at Teva Pharmaceuticals, and his leadership is focused on continuing the company’s growth and expanding its global presence.
When was Dr. Reddy Laboratories established?
It was established in 1984.
Who is the owner of Dr reddy’s laboratories?
Dr. Reddy’s Laboratories was founded by Dr. Kallam Anji Reddy in 1984. He was the chairman and managing director of the company until his passing in 2013. After his death, the leadership passed on to his son, G.V. Prasad, who currently serves as the Co-Chairman and CEO of Dr. Reddy’s Laboratories. G.V. Prasad plays a key role in the strategic direction of the company.
Who was the founder of Dr. Reddy Laboratories?
Kallam Anji Reddy was the founder of Dr. Reddy Laboratories.
Who is the CEO of Dr. Reddy Laboratories?
Erez Israeli is the current CEO of Dr. Reddy Laboratories.

April 12, 2024

Larsen & Toubro Ltd Case Study: Business Model, Financials, KPIs, and SWOT Analysis

Larsen & Toubro Ltd. (L&T) is an Indian multinational company handling different business segments like engineering, construction, manufacturing, technology, and financial services.

Want to know how Larsen & Toubro is growing in the market? Today’s blog will cover all the essential aspects of the company’s business segment, financials, and SWOT Analysis.

Overview of Larsen & Toubro Ltd

Larsen & Toubro Ltd. holds a strong name in the Indian market. This company operates in the construction industry, specially civil infrastructure, transportation infrastructure, power transmission, and manufacturing defense & aerospace machinery.

The company was established by two Danish engineers, Henning Holck Larsen and Soren Kristian Toubro, in 1938 in Mumbai, Maharashtra. Currently, Larsen & Toubro Ltd operates in more than 50 countries across the Middle East, North Africa, South East Asia, and Europe.

In FY23, the company generated 62% of its revenue from India and the rest 38% from other countries. As of 31st March 2023, the L&T Group comprises 5 associates, 97 subsidiaries, and 15 joint ventures.

Here are some quick stats of the company

Company Type	Public
Industry	Conglomerate
Founded	1938
Founders	Henning Holck-LarsenSoren Kristian Toubro
Headquarters	Mumbai, Maharashtra, India
Area served	Worldwide

Major Subsidiaries

Some of the company’s subsidiaries are mentioned below:

Construction

L&T Constructions
L&T Realty
L&T Metro Rail Hyderabad

EPC Projects

L&T Power
L&T Energy Hydrocarbon

Technology

L&T Technology Services

Information Technology

LTIMindtree

Manufacturing

L&T Shipbuilding
L&T Defence

Awards & Recognition

2020 – Company of the Year Award
2021 – Ranked 4th in the LinkedIn Top Companies list, India.
2022 – Ranked 2nd in the Top 25 EPC Contractors in the Middle East by Oil & Gas Middle East.

Business Model of Larsen & Toubro Ltd

The Larsen and Toubro business model focuses on diverse sectors including engineering, construction, manufacturing, and technology services for global markets.

L&T’s revenue has been structured into five broad categories:

Construction – This segment covers a lot of construction-related projects around Buildings & Factories, Civil Infrastructure, Transportation Infrastructure, and Power Transmission & Distribution.
Manufacturing – This segment covers Defence Equipment & Systems, Construction, Mining & Industrial Machinery, Heavy Engineering, Industrial Valves and Electrical & Automation Systems
EPC Projects – This segment covers Hydrocarbon Engineering, Power, and Power Development.
Services – L&T also provides expertise in IT solutions, data management, smart city infrastructure, and financial advisory services.
Others – This segment caters to projects that do not lie in any other segment such as Hyderabad Metro, Infrastructure Development Projects, and corporate functions

Strategies

L&T is known for incorporating multiple strategies to retain and increase market share in the long run. Some of these strategies are:

Activities: Larsen & Toubro Ltd. encompasses manufacturing, designing, and developing its products, as well as offering services to clients.
Customer Relationships: The company provides extensive support via email and customer care numbers. It believes in building strong, familiar relationships with customers.
Channels: One of the primary channels of the company is its business development and sales team. The company promotes its offerings through social media pages, advertising, websites, and conference participation.
Value Proposition: The company creates accessibility by offering its clients a wide variety of options. It focuses on providing high-quality and robust solutions and services to its clients and customers in manufacturing and financial services.

Market Data of Larsen & Toubro Ltd

Some of the company’s market data is given below:

Market Cap	₹ 529,488 Cr.
TTM P/E	41.86
ROCE	12.98 %
Book Value	₹ 635.41
ROE	14.78 %
52 Week High / Low	₹ 3,860 / 2,168
Dividend Yield	0.64 %
Face Value	₹ 2.00

(As of 10th April 2024)

Financial Highlights of Larsen & Toubro Ltd

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Operating Revenue	1,83,340.70	1,56,521.23	1,35,979.03	1,45,452.36
Total Income	1,89,162.20	1,63,493.02	1,42,107.15	1,50,398.09
Total Expenditure	1,58,936.85	1,36,594.88	1,14,907.47	1,23,235.42
Profit before Tax	17,109.03	14,494.97	8,679.78	13,430.95
Profit after Tax	12,624.87	10,291.05	4,668.96	10,167.75
Consolidated Profit	10,470.72	8,669.33	11,582.93	9,549.03

(The values are in Crores)

The company’s income statement shows a growing trend as the company’s revenue and profit increased by 17% and 20.7%, respectively in FY23

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Current Liabilities	1,62,065.99	1,59,360.85	1,37,404.81	1,42,745.04
Non-Current Liabilities	60,734.31	62,412.83	83,248.64	83,320.29
Current Assets	2,21,215.52	2,07,372.30	1,94,960.59	1,78,322.68
Non-Current Assets	1,04,163.20	1,09,024.06	1,13,609.88	1,21,603.66

(The values are in Crores)

The company’s balance sheet showcases a growing trend in current assets, which is fueled majorly by current liabilities. This approach limits debt growth in the long run.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	22,776.96	19,163.58	23,073.82	6,693.88
Cash Flow from Investing Activities	-8,311.70	-3,667.68	-5,658.52	-8,256.27
Cash from Financing Activities	-11,572.49	-15,181.48	-15,274.38	6,371.55
Net Cash Inflow / Outflow	2,892.77	314.42	2,140.92	4,809.16

(The values are in Crores)

The graph and table reveals a lot of turbulence in the company’s operations as it is diverting a significant amount of funds to pay-off debt and invest in new ventures.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	12.98	11.61	9.97	12.49
ROE (%)	14.78	13.07	6.58	15.84
ROA (%)	3.92	3.29	1.52	3.51
EBIT Margin (%)	11.40	10.85	13.36	13.58
Net Margin (%)	6.67	6.29	3.29	6.76
Cash Profit Margin (%)	8.80	8.46	5.57	8.68

The company’s margin trend shows an uptrend, thus revealing a growth in the profitability. This growth is also reflected in ROCE and ROE.

Future Outlook

The company expects EBITDA margin to be in the range of 8.5%-9% in FY24 from the earlier guidance of ~9%.
Larsen & Toubro (L&T) aims to double revenue and order inflow by 2025-26 through a five-year strategic plan called Lakshya’26 that aims at exiting non-core operations and expanding the services business.

SWOT Analysis of Larsen & Toubro Ltd

The SWOT Analysis of L&T highlights its strengths, weaknesses, opportunities, and threats, showcasing its market position and growth potential.

Strengths

L&T Ltd. enjoys the benefits of brand identity and brand value in the construction and manufacturing segment, thus helping to increase trust in its clients.
The company has a diverse business portfolio, which gives it an advantage in navigating different market conditions and capitalizing on opportunities in multiple industries, such as construction, engineering, and manufacturing.
The company has a robust financial performance and also observed impressive revenue growth over the years.

Weaknesses

L&T has been battling high debt, which can challenge the company’s financial stability and growth prospects.
The company heavily depends on the domestic market for revenue; slight fluctuation in the market will also affect the company.

Opportunities

The company must ensure that each acquisition aligns with its long-term goals and strengthens its core competencies.
They must explore opportunities in international markets, particularly in some places experiencing rapid infrastructure development.

Threats

L&T operates in a highly competitive atmosphere, facing competition from domestic players and global companies entering the Indian market.
The company operates in an industry that has a history of exploiting environmental bodies

Conclusion

Larsen & Toubro Ltd has a strong presence in the global market. It has a diverse portfolio and has achieved impressive financial performance. The company aims to double its revenue and order inflow by 2025-26 through a strategic plan called Lakshya’26.

While the majority of the indicators point towards the company’s prosperous future, it is advised that you perform your analysis before investing your hard-earned money.

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Frequently Asked Questions (FAQs)

Who was the founder of Larsen & Toubro Ltd?
Henning Holck-Larsen and Soren Kristian Toubro are the founders of L&T.
What are the services L&T provides?
The main services of the company are manufacturing, technology engineering, construction, information technology, military, and financial services.
Where was L&T founded?
L&T started its operation in Mumbai, Maharashtra, in 1938.
What is the plan of L&T in 2026?
L&T Financial Services aims to complete its transformation into a digitally enabled retail powerhouse by the end of the Lakshya 2026 strategic plan.
What is the market cap of L&T?
As of 10th April 24, the market cap of L&T is ₹ 529,488 Cr.

April 10, 2024

Blog

Overview on Insurance

Features of Insurance

Terms of Insurance

How does Insurance work?

Benefits of Insurance

Types of Insurance

Life Insurance

General Insurance

How to Choose an Insurance Provider?

Key Comparison Metrics of Insurance Providers

Conclusion

Frequently Asked Questions (FAQs)

What is the purpose of insurance?

What are the types of insurance?

Which organization manages the workings of the insurance industry?

What is IMF in Insurance?

Is there any tax benefit available in insurance?

Overview

Features

Types of ‘FIRE’

How does ‘FIRE’ work?

Method of Calculating ‘FIRE’

Advantages

Disadvantages

Conclusion

Frequently Asked Questions (FAQs)

What does FIRE stand for in financial terms?

What is the FIRE method?

How do you calculate your FIRE number?

How can I plan my retirement by FIRE?

Is FIRE achievable for everyone?

Overview of Private Equity vs Venture Capital

Private Equity

Process

Venture Capital

Process

Private Equity vs Venture Capital

Famous Firms

Venture Capital Firms

Private Equity Firms

Conclusion

Frequently Asked Questions (FAQs)

What is the difference between Private Equity and Venture Capital?

Which is riskier, private equity or venture capital?

How involved are PE and VC firms in the businesses they invest in?

How long do VC and PE investments generally last?

How can my startup become eligible for VC funding?

Overview of Hero MotoCorp

Business Model of Hero MotoCorp

Product Portfolio of Hero MotoCorp

Did you Know

Financial Statement Analysis of Hero MotoCorp

Key Highlights (FY 2022-23)

Balance Sheet

Income Statement

Statement of Cash Flows

Key Performance Indicators

SWOT Analysis of Hero MotoCorp

Strengths

Weakness

Opportunities

Threats

Conclusion

Frequently Asked Questions (FAQs)

When was Hero MotoCorp founded?

Is Hero Moto a good investment option?

What are some popular Hero MotoCorp models?

Is Hero MotoCorp a listed company?

In how many countries Hero MotoCorp has presence in?

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