Tata Capital Limited - NCD Issue – Promising Good Returns for Long Term

Issue Details
Issue – Non Convertible Debentures aggregating INR 5.00 Billion, with an option to retain over subscription, of INR 10.00 Billion.
Security – First pari-passu charge on the receivable of the Company and an identified immovable property (100% asset cover for the value of NCDs)
Rating- LAA+ by ICRA and CARE AA+ by CARE
Schedule – Issue opened on February 2 and closes on February 24, 2009
Options – Various investment options available with monthly, quarterly, annual and cumulative interest payment options with coupon ranging from 11% to 12% per annum.
Tenor/Redemption – 60 Months
Put/Call Option – 36/42 months

Background
Tata Capital Limited (TCL) is a diversified financial services company providing services (either directly or through its subsidiaries) to retail, corporate and institutional clients in the areas of retail finance, corporate finance, investment banking, retail broking and distribution, wealth management and private equity. The company was incorporated in year 1991, however actively commenced business operations since September 2007.

TCL is a wholly owned subsidiary of Tata Sons Limited, the apex Tata Company. The company has its headquarters in Mumbai and operates 2 regional offices and 32 branches in 22 cities in India. In addition, the company has a subsidiary in Singapore and is in process of obtaining approvals for setting up a subsidiary in London.

The activities of the company are primarily divided into Fund based business viz. Retail Finance, SME Finance, Infrastructure Finance, Housing Finance and Corporate Finance and Fee based business viz. Private Equity, Wealth Management, Treasury Advisory, Investment Banking, Merchant Banking, Retail Broking & Distribution, Depository Services, etc.

Most of the fee based businesses of the company have been commenced recently and presently the fund based business constitutes the majority of the business and revenue of the company.

TCL was incorporated in year 1991 and was registered with RBI in 1999 as a Non Banking Financial Company to carry on the business of NBFC.

Management
Mr. Praveen P. Kadle is the Managing Director and the Chief Executive Officer of the Company. He is an honours graduate in commerce and accountancy from the Bombay University and is a member of the Institute of Chartered Accountants of India, Cost and Works Accountants of India and the Company Secretaries of India.

Mr. Kadle has been working for the Tatas for the last 17 years. For the first five years, he was the Chief Financial Officer of the Joint Venture of the Tatas with IBM in India. Thereafter, he joined Tata Motors Limited as Vice President (Finance) and in the year 2001 was promoted to the Board of Directors of Tata Motors Limited as Executive Director (Finance & Corporate Affairs). Prior to his joining the Tatas, Mr. Kadle was the Chief Executive Officer and member of the Board of Directors of Garware- Wall Ropes Limited.

Mr. Kadle is a member of the Board of Directors of various Tata companies. Mr. Kadle has received a number of awards in recognition of his outstanding contribution to Tata Motors Limited, which are : CNBC-TV18, the Country’s best performing CFO in the Auto and Ancillaries sector for 2006; ‘The Best CFO of the year 2005’ in India by Business Today; the ‘CFO of the year 2004’ by IMA (formerly known as Economist Intelligence Unit).

Other directors of the company include Mr. H N Sinor, Mr. Janki Ballabh (Independent Directors) and Mr. Farrokh K Kavarana, Mr. Ishaat Hussain and Mr. F N Subedar (Non Executive Directors).

Promoter
Tata Capital Limited has been promoted by Tata Sons Limited. Tata Sons Limited was incorporated as a private limited company under the Indian Companies Act, 1913 on November 8, 1917. Tata Sons Limited is the principal investment holding company of Tatas with significant holdings in the share capital of major operating companies of which it is Promoter. Amongst its subsidiaries, Tata Consultancy Services Limited (“TCS”), Tata Investment Corporation Limited (TICL) and Tata Teleservices (Maharashtra) Limited are listed on the stock exchanges. Currently Tata Sons Limited has 113 subsidiaries (various Tata Group companies).

Issue Ratings
The issue has been rated LAA+ by ICRA and CARE AA+ by CARE.

Conclusion
Tata Capital Limited is a new entrant in the financial services industry. While the company boasts of trusted TATA brand, experienced management and a broad spectrum of fund based and fee based services; the prevailing economic scenario poses significant challenges for growth in short to medium term. TCL has actively started its operations since September 2007 only; thus there is little historical performance to comment upon.

The main comfort in the present issue emanates from the strong parentage of the company (100% subsidiary of Tata Sons Limited), trusted TATA brand, diversified product mix, and significant opportunities of leveraging the synergies with other Tata Group companies by financing various participants in the supply chain as well as some of the end products. The strong parentage provides adequate comfort of the Company to remain adequately capitalized and to refinance its debt.

Though the company is yet to make a strong foothold in the competitive financial services industry; given the intrinsic strengths discussed above, the present issue provides good long term investment opportunity with attractive (upto 12% annualized) returns.

Source: Issue Prospectus, Website of the Company, etc.
Disclaimer
This material is for the general information of the authorized recipient, and we are not soliciting any action based upon it.
It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. You are advised to independently evaluate the investments and strategies discussed herein and also seek the advice of your financial adviser.
This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Any opinions expressed here in reflect judgments at this date and are subject to change without notice.

JK Lakshmi Cement

Performance Review (Quarter & 9 months ended Dec 08)

Comments
The company achieved marginal revenue growth of around 5 per cent for the quarter as well as nine months period. Although the sales volumes were higher by around 10%, lower realisations led to lower sales growth.

The operating margin (EBIDTA) has been largely impacted by higher power & fuel costs (27 per per cent of net sales during 9 months ended December 31, 2008 vis-a-vis 22 per cent in the corresponding period in the last year).

Lower operating margin led to lower net profits.

NIIT Technologies Limited

Performance Update (Quarter & 9 months ended Dec, 08)



Comments
NIIT Technologies Limited is a global IT solution provider. Amidst the global financial crisis, the company recorded marginal growth of around 8 per cent for the quarter ended December 31, 08 vis-a-vis corresponding quarter in the last year. However, on a cumulative basis, the revenue for nine months was higher by around 21 per cent vis-a-vis corresponding period in last year.

Operating profitability represented by EBIDTA margin almost halved to around 15 per cent during Dec 08 quarter. The profitability was mainly impacted by higher other operating expenses (INR 412.8 Mn, against INR 257.7 Mn), which in turn was higher on account of charge towards development cost of INR 121.3 Mn and Foreign Exchange Loss of INR 117.3 Mn. However, the EBIDTA margin for nine months was higher at around 24 per cent (though lower than 33 per cent of last year).

Net Profit was lower on account of lower EBIDTA margins.

Jay Bharat Maruti Limited - December 08

Performance Update (Quarter & 9 Months ended Dec 31,08)

Comments
During the quarter ended December 31, 2008 , the company registered marginal decline in revenue vis-a-vis the corresponding quarter in the last year. However, on a cumulative basis, sales for nine months grew by around 9 per cent.

Similarly, the EBIDTA margin for the current quarter was lower at 5.6 per cent (vis-a-vis 8 per cent in the corresponding quarter). The lower margin was mainly on account of higher raw material cost as a percentage of net sales. However, the operating margin for the nine months was largely similar to that of previous year.

Net Margin for the quarter was lower on the back of lower EBIDTA margin.

Important Note to the Quarterly Results
The company, based on a legal opinion, has continued to adjust the foreign currency exchange difference on amounts borrowed for acquisition of fixed assets, to the carrying cost of fixed assets in compliance with schedule VI to the Companies Act, 1956, which is at variance to the treatment prescribed in Accounting Standard 11. Had the treatment as per the AS 11 been followed, the net profit after tax for the current quarter and current nine months would have been lower by INR 18.2 MM and INR 32.9 MM respectively.

Re-Emergence of Corporate Fixed Deposits

Fixed Deposits, once a very popular instrument of raising funds by the Indian corporates, were almost out of fashion and trend on account of various reasons to include comparatively higher cost of funds, stricter norms under Companies Act requiring regular interval disclosures and compliances, low investor interest (due to past experiences of default), and availability of alternate and cheaper sources of finance to the corporates.

The recent economic slowdown and the overall liquidity crisis, wherein corporates are facing difficulties in raising funds from the alternate sources viz. capital markets/banking system, the trend of deposits issuances has re-emerged. Reportedly 60, companies have offered public deposit schemes in the month of December 08 itself including big names like Tata Motors, United Spirits etc. One can spot one new advertisement almost every day/every alternate day, seeking such deposits from the public.

While these deposits carry attractive returns (interest rates as high as 11-12.5% in some cases), it is important for the investors to not get carried away solely by the attractive returns such deposits offer; and carry out a thorough analysis of the background, management, and financial health of the companies raising such deposits, to ascertain the interest and principal repayment abilities.