Gold ETFs – Increasing Market Penetration

Investing in stock markets is turning out to be a risky affair, as it is always surrounded by global uncertainties. Hence, the yellow metal’s shine is only becoming more attractive and a perfect hedge against rising inflation. Investment in gold can either be through purchase of physical gold or through Gold ETFs, which are special types of ETFs which invest in gold and gold related securities.

What is ETF?

ETF or Exchange Traded Fund is an investment fund traded on stock exchanges, just like stocks. ETFs can be based on any of the assets like stocks, bonds, commodities like Gold etc and is supposed to trade close to its asset value. ETFs are interesting for investors as the brokerage/maintenance costs are low and has higher liquidity compared to traditional assets especially in case of Gold. Also, they are easily tradable and have stock like features.

What exactly is Gold ETF?

Gold ETF or Gold Exchange Traded Fund is an investment fund based on Gold as an asset. The price of Gold ETF would be close to its asset value.

Presence in India

With global uncertainties and fall in the domestic price of the yellow metal, month-end assets under management (AUM) of Gold ETFs witnessed a sharp rise. With 44 mutual fund companies in India, only 11 of them have come up with Gold ETFs - Benchmark Mutual Fund (now Goldman Sachs Mutual Fund) was the first to start a Gold ETF in March 2007. The scheme name was Benchmark Gold BeES (now known as GS Gold BeES.

Performance Review

 

 

Average Assets under Management (AAUM):

AMFI which was declaring the AUM numbers on monthly basis till Sep-10 is now declaring the AAUM (Average Assets under Management) numbers on quarterly basis after Sep-10 onwards.

On comparing of AAUM numbers, the total AUMs (Corpus) in Gold ETFs category which was 2732.44 Crs. in Sep-2010 has increased to 3765.28 in Mar-2011 (AAUM basis), which further increased to 7053.13 Crs (AAUM basis) in Sep-2011. This is an increase of 37.80% in first 6 months and 87.32% in next 6 months. On Y-o-Y basis, the increase is of 158%.

Market Share (As on Sep-10-2011):

 

 

Goldman Sachs BeES has the highest market share of 36.26%, followed by Reliance which has 27.25% of market share. Kotak Gold is the third amongst the 11 having a market share of 10.94%.

Introspection:

 ICICI Gold ETF which witnessed a highest increase of 51% in AAUM in the first 6 months has seen a decline of whopping 26% when all others have gained to their respective AAUM numbers.
 Reliance which gained 36% in the first half, gained a humongous 342% in the second half which amounts to an addition of 1487.51 Crs in it’s AAUM kitty in the second half.

 Kotak Gold ETF’s AAUM increased a huge 200% in the second half in comparison to a meager 12% in the second half.

 HDFC which lost it’s footing by 2% in the first half, gained 11.5% in the second half.

 Religare Gold ETF was the laggard among the gainers in the first half (10%) and the second half (7.59%) respectively.

 

Expense Ratio:

Source: Value Research Online

ICICI Prudential Gold ETF has the highest Expense Ratio amongst all followed by Birla Sun Life Gold ETF.

Year-On-Year Returns

Yearly Returns (in %) terms - (As on 09-11-2011)

All The ETFs have gained in the range of 38.03% to 39.04%.Reliance Gold ETF has gained the most (39.04%) in the category and ICICI Prudential Gold ETF has gained the least (38.03%) amongst all.

Outlook:

ETFs have outperformed all other mutual fund categories under various time horizons. This can also be viewed from the fact that 75-80% of the ETF turnover under the National Stock Exchange (NSE) is governed by the Gold ETFs. Thus the various benefits mentioned above, coupled with satisfying the need of small and medium investors to invest and accumulate gold units through SIPs has made Gold ETFs more and more attractive. ETFs have also outperformed the benchmark index, BSE Sensex and S&P Nifty, which represents the overall market.

Investor interest in ETFs is also attributed to low cost, transparency and ease of transaction. If the trend continues, ETFs corpus will continue to grow and this might lead to more ETF variants being launched in the near future and a more matured ETF market.

In US, there are already different types of Gold ETFs available for trading.

Gold ETFs investing in physical Gold: They are the ones which we have in most countries. As mentioned earlier, they are backed by physical Gold. Some of the Gold ETFs in this category: SPDR Gold Trust (GLD), iShares COMEX Gold Trust (IAU) etc.

Gold ETFs investing in Gold futures: They are the ones which invest in Gold bullion futures rather than directly investing in physical gold. Investors interested in high leverage trade in such ETFs as the leveraged Gold ETFs allow traders to gain multiples of their investment through leverage. One of the Gold ETF in this category: PowerShares DB Gold (DGL).

 

Short Gold ETFs: These ETFs are inverse in nature i.e. when gold prices move northwards, the price of gold ETF comes down. One of the Gold ETF in this category: Ultra Short Gold ProShares (GLL).

 

Gold Miner ETFs: These ETFs invest in the shares of gold mining companies. Some of the Gold ETFs in this category: Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), PowerShares Global Gold & Prec Metals (PSAU). 

 

Top 10 Costliest Indian Stocks

For some people the stock price is not important. But for many investors, stock prices are very important in their lives. If their stock price becomes expensive they will become rich.

Following is a list of 10 costliest Indian Stocks as on 7-Nov-11. This is also supplemented by their key financial indicators in the last two fiscal years. Besides this, the latest key Shareholding stats, Market Cap and Free-Float Market-Cap (FF M-Cap) are also mentioned in the specific stock details.

1)      Orissa Minerals Development Company Ltd.  -    48750.10  `

2)  Dalal Streets Investment Ltd.  -  22182.90  `    

Last Traded Date: 17-Oct-11

3)      Bombay Oxygen Corp. Ltd.  -  7400.00  `

4)      BOSCH Ltd.  -  7001.55  `

5)      Tide Water Oil (India) Ltd.  -  6917.00  `

6)      MRF Ltd.  -  6732.45  `

7)      Ravalgaon Sugar Farms Ltd.  -  5750.00  `

8)      Nestle (India) Ltd.  -  4498.65  `

9)      3M India Ltd.  -  4434.25  `

10)  Kaycee Industries Ltd.  -  3903.10  `

           

Investment vs. Inflation

Inflation is a menace that almost silently erodes your wealth. Inflation which represents a rise in prices, results in a decline in your purchasing power. One of the goals of your investing plan should be to beat inflation.

This post analyses how bank deposits compare vis-à-vis inflation. Additionally, comparison is also on the basis of Inflation vis-à-vis Sensex (equities).

 

The above table showcases the data for 22 years timeframe on following attributes:

a) 1 Year Bank Deposit Rates (%): Deposit Rates for “1-3 years”, higher end of the range picked.

Source: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12765

b) CPI Inflation (%): Consumer Price Index – Annual Average for “Urban Non-Manual Employees”.

Source: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12731

Data for 2010-11 assumed to be similar to 2009-10.

c) Sensex Returns (Y-o-Y basis): Calendar Year, 2010-11 Returns (Year-to-Date): Until “9-Sep-2011”.

The average “deposit rates” for the mentioned year comes out to be 9.16%. The average yearly CPI inflation comes out to be 7.89%. The deposit outscores the inflation on an average basis by 1.27%.

For “Sensex”, the average yearly returns are 20.85% vis-à-vis the yearly CPI of 7.89%. The Sensex on an average basis leads banks deposits by 11.7%.

The inflation as can be seen from the table is in the higher band in the later year’s vis-à-vis the previous years. So, while the real return on both the asset classes remains in positive terrain, the margin varies significantly. In bank deposits, there is a margin of just 1% while with Sensex it stretches up to 13%. This means that in bank deposits there is very little scope to accommodate any shocks and one shock of course is that inflation may go northwards.

However, there are few more which are apparently visible:

1) Tax

Every year, the income that you earn on investments becomes liable to tax, depending on your tax bracket. As on date, long term capital gains tax is exempt but it’s not confirmed that things will remain as it is, going forward.

Let’s assume that if one falls in 10% bracket and analyze whether tax has any impact on one’s effective returns. Post tax, bank deposits fetches 8.24% returns and the real return from deposits comes out to be 0.35%. If the tax bracket is increased further, the real return from deposits slips into negative territory.

If we do some back of the envelope calculations for Sensex, tax eats up almost 2% of Sensex returns (10% tax bracket). Post tax, Sensex fetches 18.77% returns and the real return from Sensex comes out to be 10.88% vis-à-vis 12.96% (when tax is not considered).

2) Increased Expenses

Even if your bank deposits did break even, your retirement corpus would need to be able to provide for expenses that will increase post retirement, health care being significant.

Why Equities?

Equities stock prices are inflation adjusted because underlying companies posts results, which are inflation adjusted. Profits are inflation adjusted because if inflation goes up and costs increase, companies will increase their prices too in order to generate profits. However this stands true for good companies which are headed by able managements. They have the competence to deploy sound strategies to maintain margins, either by managing costs or increasing sales.

Equities are risky proposition, aren’t they?

Yes, but only in the short term, equities are risky. In the short term, prices of equity shares are driven by traders and speculators. They look for short term gains and bet on scrips on the basis of tips and information which may or may not turn into reality. However over a long term, all these short term volatilities get evened out and reflect the realistic growth of company.

This typically suggests that equities are good investments to for long term goals, that is, any goal ranging from 7 to 10 years or more. For medium term goals, which range from 3 to 7 years, a decent mix of debt and equity should be ideal. This also involves asset rebalancing when you reach close to goal attainment.

For short term goals, say less than 3 years, one should stick to debt instruments. One thing can easily transform into reality that inflation outdoes debt returns in the short term and you end up failing to attain the short term goals. To counter this, one might have to set aside a little more in that case. As the time period is short, impact cost may not be very high (as it is compounder over a short period).

Let’s assume, buying a car is the respective goal. The bank FD gives you 8% and inflation is 9%, the excess you might have to shell out to buy the car. This excess will be directly proportional to tenure one has set for the attainment of the goal. The more short-term the goal is the more provisioning one has to do for the excess money.

In no case whatsoever, equities can be short-cuts for meeting the excess. One might look for quick-profits from equities on the basis of a stock tips or a recommendations. But the envisaged quick-profits may transform into quick losses and the dreams aligned with the goal may shatter at that very moment.

On the contrary, one might have any provisioning for the excess money, so the solution for this is to defer the goal and set aside a reasonable time to meet that goal with proper planning. The compromise may not sound so good, but its much better w.r.t to a situation where “the short-cuts leads to long term miseries”.

Equities are indeed volatile in the short-term. Also remember, all your other goals can be postponed or pared down but not your retirement which is definitely a long-term goal.

This reiterates the fact that equities as an asset class, work best as a long-term instrument. As it assimilates all the short-term volatilities and reaps long-term benefits.

The trick is simple, to stay put for the long-term.

Sensex and Nifty Cos. – FII holdings trend

Foreign  Institutional  Investors (FIIs) continue to increase their holdings in Sensex and Nifty Companies as per the trend .Analyzing the SHP data, on Quarter-on-Quarter basis, FIIs have increased their holdings in 26 out of 51 companies. On yearly basis, FIIs have increased their holdings in 32 companies.

Though the FII holdings have not significantly increased in any of the companies but the holdings also have not witnessed any deep cut. Amidst the global economic turmoil, FIIs have also adopted a conservative approach and have not been so consistent while investing in the Indian markets.

The following is the trend analysis of FII holdings in 51 Sensex and Nifty Companies in the last 5 quarters. The trend of 5 quarters has been depicted in the form of sparklines. Additionally, advances and declines have been highlighted on quarterly and annual basis.

FII-Holdings Trend:

  

Source: BSE

Q-o-Q basis: 

Analyzing the Top 5 Losers on Q-o-Q basis, Cairn India has witnessed a steep decline of 36.22% from 11.65% in Q4, 2010 to 7.45% in Q1, 2011. The big daddy, SBI has also seen a decline of 15.00% from 12.80% in Q4, 2010 to 10.88% in Q1, 2011. Ambuja Cements, IDFC and Jaiprakash Associates being the other prominent losers on Q-o-Q basis.

 

In the top 5 Gainers category, FIIs have increased their holdings in ONGC from 4.45% in Q42010 to 4.84% in Q12011, accounting to an increase of 8.76% on quarterly basis. Larsen and Toubro stood at a close 2nd position with 8.30%. Siemens, Hindustan Unilever and Coal India taking also witnessed an increase of 7.14%, 6.32% and 4.60% in their respective FII holdings.

Y-o-Y basis:

 

On Yearly basis as well, Cairn India continued it’s dismal show and could not manage to allure the FIIs. It managed a drop of steep 42.15% in it’s FII holdings from Q12010 to Q12011. The other prominent losers are Jaiprakash, Siemens, Bajaj Auto and Dr. Reddy.

In the yearly gainers category, Power Grid managed a whopping increase of 89.15% in FII holdings from a meager 1.46% in Q12010 to 13.46% in Q12011. NTPC being a distant second at 27.68% increase in it’s FII holdings on a yearly basis. The next three in line are Reliance Power, ACC and Tata Power at 21.99%, 16.15% and 12.82%. On reanalyzing the list, 4 out of 5 stocks are from power industry and all 5 stocks are from the ‘Infrastructure’ club.

Coal India, NTPC and Power Grid have witnessed a continuous increase in the FII holdings with every passing quarter. On the contrary, Bajaj Auto has seen a continuous decrease in the FII holdings on quarterly basis.

The average FII holdings for Sensex and Nifty companies have dipped a bit from 18.78% in Q42010 to 18.53% in Q12011.The average FII holdings for Q32010 and Q22010 were 19.08% and 18.71% respectively. This is under the assumption that same set of stocks represent as combined constituents of Sensex and Nifty. Coal India and Sun Pharma are recent inclusions in Sensex with effect from 08-Aug-11 in place of Reliance Infra and Reliance Communications.

PSU Public Offerings - Losing their flavour

Public Sector Undertakings have almost always been excellent investment opportunities. The Initial Public Offerings (IPOs) of NTPC, Power Finance Corp and Rural Electrification Corp have created immense wealth for investors in the past years.

These firms generated better returns than their private counterparts in those times and also allured investors with 5% retail discounts.

Many big-ticket IPO/FPOs are waiting to hit the hit the capital markets, ONGC and SAIL the prominent ones in the list. These offerings have been delayed due to turmoil in the Indian markets backed by the issues emanating from the U.S and EU Zone. If newsmakers have to be believed, ONGC FPO is supposed to hit the market in Sep-2011 and SAIL in this fiscal year.

Following is the list of public sector offerings that hit the capital markets in the last 2 years. The data also throws some light on grading’s, subscription in retail category. Additionally, data also has a mention of overall subscription status of these offerings.

The list comprises of total 15 PSU offerings in the last 2 years. Out of these, 8 are Initial Public Offerings and others being Follow-On Public Offerings. This list includes the biggies like Coal India IPO and gargantuan FPOs of NMDC, NTPC, Power Grid and PFC.

As can be seen, all the PSU IPOs in the list are graded 3 (Average Fundamentals) to 5 (Strong Fundamentals). All these 15 offerings collected 63635.56 crores, Coal India leading the pack at 15199.94 Crores.

Performance of PSU offerings:

Source : BSE Data

The data in the above list analyzes the listing date performance of the public offerings and as on date absolute returns of the same.

Listing Day Performance:

Coal India which had a marvelous listing emerged out to be a clear winner in the pack with 39.73% returns. The next in line is MOIL which generated 24.40% returns on its debut. REC FPO which hit the market in Feb-10 generated 19.14% returns on its listing day.

5 out of 15 issues plunged in red on listing days on closing basis with PTC India Financial suffering the most, almost to the tune of 11% drop from its issue price. The rest in the lot, posted meager to decent returns in the range of 1-10%.

However, the losses in PSU offerings are less in comparison to the private players which may be very volatile in terms of returns. Still in a broader sense, it is still discomforting for the investors to see the public offerings slipping in red vis-à-vis its issue price on the first day itself.

As on Date Performance:

As on date, 11 out of 15 stocks have plunged in red in comparison to respective issue prices. PTC India Financial Services have suffered the most with almost 41% drop below its issue price. Shipping Corp – FPO and Punjab & Sind Bank – IPO are next in line with 38.64% and 37.67% drop respectively.

Coal India, yet again, tops the pack with 53.04%. The others which managed to show up in green are Power Grid, United Bank and Oil India.

MOIL which made its listing debut at 551, ended the listing day at 466.5 with gains of 24.40% from its issue price is now quoting at 302.05, a loss of 19.45% vis-à-vis its issue price. It has witnessed a slump of almost 45% from the listing day high.

Oil India has been at the other extreme, which managed to improvise its listing day performance to put up a better show, as on date. Oil India debuted at 1019.00, ended the listing day at 1140.55 and currently quotes at 1300. It has been witnessing an upsurge unlike MOIL which faced a continuous downfall.

Power Grid, Coal India and United Bank are few others in the list which resembled Oil India and gained on their listing date performance to put up a good show, as on date. Apart from these 4, all others have witnessed a downfall when their listing day performance is compared with their as on date performance.

Looking at the broader context, all this happened with a sharp downslide in the secondary market because of uncertainties in the global economy. But still analyzing this pack, the PSU offerings have also witnessed huge volatility in terms of returns and that too in a short span of time. This kind of volatility is more attributed to non-PSU offerings and that too with lower ratings.

This raises some questions on pricing aspect of the issues w.r.t the financial strength of the company. Additionally, it also questions the grading’s assigned to the some of the new kids on the block.

These are few points which require a great deal of thought. This is so because if there is nothing or very little left on the table for a retail investor, he would like to look for better investment alternatives. All this can be harmful in the context, especially when the government is looking for the means to increase the retail participation both in primary and secondary markets.

IPOs in 2011: An Evaluation

IPO activity in first half of 2011 has mainly been a dull affair with no big names hitting the bourses. Although the Tata Steel’s and PFC’s of the world came up with their huge FPOs but couldn’t manage any blockbuster success. The FPOs are not generally expected to spring up any surprises in terms of investor returns, so it is very much in line with the expectations.

On the IPO front, 22 IPOs managed to list on the Indian bourses since January 1, 2011 till date. The following is the list of IPOs, arranged on the basis of Listing Day Returns w.r.t respective issue prices.

Listing Day Returns:

Analysis:

a) The top 5 listing day returns were posted by IPOs which have been either rated as Grade-1 (Poor Fundamentals) or Grade-2 (Below Average Fundamentals) by the rating agencies.
b) 2 of them, Birla Pacific Medspa and Fineotex Chemicals, posted whopping returns of greater than 100% and emerged out as “Listing Day Stars”.

c) Only 2, Grade-3 or Grade-4 IPOs hit the bourses in this time-frame and posted listing day returns of 0.71% and – 11.07% respectively.

d) 10 out of 22 IPOs plunged on their listing day itself. Omkar Speciality had an embarrassing debut, suffered the most with a decline of greater than 50%.

e) 9 IPOs were assigned a grade of 2,5 IPOs were assigned a grade of 1 and 1 of them was assigned multiple grades of (1,2) by different rating agencies.

f) The average grade of these IPOs comes out to be 2 (Below Average Fundamentals), disseminating the quality of the IPOs in a broader perspective.

(For IPOs with multiple grading’s, highest rating taken into account for calculating the average grading).

Returns (as on 14^th -Jul-2011):

 

Analysis: 

a) 4 IPOs have posted returns of more than 100%.3 out of these 4 are Grade-2 IPOs.

b) Fineotex Chemical continues it’s dream-run, posting returns of over 300% as on 14-07-2011.This IPO also had a dream debut on it’s listing day and posted returns of more than 100%.
c) For the rest, dismal performance continues here as well. Only 9 out of 22 IPOs managed to stay ahead of their issue prices.

d) Barring one (Lovable Lingerie) which is a Grade-3 IPO, all of these 9 are either Grade-1 or Grade-2 IPOs.

e) 13 out of 22 are quoting below their issue prices.8 of these 13 have plunged within range of 0 to 50% of their issue prices.

f) 5 IPOs are generating losses to the tune of 50 to 82 percent against their respective issue prices.

g) Acropetal (Grade-3) which had a decent listing has witnessed a bloodbath after that, has plunged the most, 80% below it’s issue price.

Caveat Emptor: IPOs tend to be glamorous but they can be deceiving at the same time. Investors generally park their money in hot ‘new offer’ for 15 days and expect a wonderful ROI upon listing. Though we can’t forget the Coal India and Jubiliant Foodworks of the world but we cannot ignore the other side of the story.

There are good companies available which have potential to grow as well as create wealth for investors. But for riding on the IPO bandwagon, one has to bear some things in mind.

1) Don’t go for Grey Market Premiums as they can be misleading; instead look at the company fundamentals.
2) Don’t go for “Word of Mouth”; instead do some research for the promoter track-record.
3) Have a look at the “Objects of the Issue” and “Future Prospects” and the synchronization between the two.

4) Don’t be allured to the lower tick sizes. A comparison of company’s EPS and P/E with it’s industry peers will give a good idea about fair price of an IPO.

MF Returns: SIP vs. Non -SIP

I was in the process of collating the data for prospective candidates for MF investments for my family, last weekend. I thought of evaluating the performance of some select funds. These funds are primarily from diversified equity and balanced (hybrid) category of MFs. Most of these are part of the pack of Top 5 funds (on historical returns basis) in their respective categories.

I analyzed their performance on varied time-frames i.e 1 year, 3 years and 5 years returns both on SIP and Non-SIP Parameters. Non-SIP means the lump sum amount was invested in the beginning of the year itself.

 Time-Frame: Jun 10 -Jun 11

1 year returns: Analyzing the performance on yearly basis, the highest SIP returns amongst these surprisingly emerged from a balanced fund, Birla SL 95 Fund (4.05%) and Reliance RSF Equity yielding the lowest returns of the pack(-5.67%).

In the Non-SIP category, HDFC Equity generated highest returns of 16.89% and a lowest return in this pack was from HDFC Prudence (1.12%).However, Reliance RSF Equity again generated the lowest returns (7.56%) in the “diversified-equity” category.

The maximum variance of 14.44% in SIP vs. Non-SIP returns was from HDFC Equity and minimum of 0.46% from HDFC Prudence.

Time-Frame: Jun 08 -Jun 11

3 year returns: In last 3 years, the highest SIP returns amongst these emerged from HDFC Equity (29%). HDFC Prudence yielded topmost 27.47% in the above mentioned “Balanced” pack. DSPBR Balanced yielded 17.14%, the least in the pack.

In the Non-SIP Category, again a balanced fund, HDFC Prudence (18.61%) emerged out as a winner. The lowest gains (8.21%) posted by Reliance Vision in the pack.

                         Time-Frame: Jun 06 -Jun 11
                         * These funds are in operation for less than 5 years

5 year returns: Analyzing returns on 5 years basis, the highest SIP returns amongst these emerged from HDFC Prudence (19.41%). HDFC Top 200 posted highest (18.24%) in the equity category.

In Non-SIP category, Reliance RSF equity posted 20.72%, outperforming all the funds in SIP and Non-SIP Category.UTI Dividend Yield posted 20.31% and ended up a close 2nd.

The maximum deviation in SIP vs. Non-SIP returns in 5 year period is in Reliance RSF Equity (-4.05%) and minimum deviation is in HDFC Prudence (0.22%).

Broad Perspective: The following observations were extracted from this exercise (particular to this data set).

• In the 1st year, as expected, Non-SIP returns are more in comparison to SIP returns. This is in conformance to the view that short-term investments in SIP will not give your returns an edge over the Non-SIP investments.

• Analyzing the 3 year returns, the SIP returns outperformed Non-SIP returns in all cases. This is the most important aspect of SIP investment. SIP can provide good return to you only over long period that is over 3 years or more.

• Analyzing the 5 year returns, SIP returns on an average match the Non-SIP returns. This needs to be analyzed further with other data sets as it might be one of an off-case (specific to this data set).

• Last but not the least, the golden principle is, SIPs are supposed to work because of “rupee cost averaging,” which is based on the knowledge that markets will go up and down and up again.

Castrol India: Stupendous Performer

Industry: Oil & Gas/Lubricants

Profile:

Castrol India is a part of BP Group Worldwide and was incorporated in 1979. Castrol’s Indian Association traces back to 1910, when C C Wakefield & Company made an entry in market with automotive lubricants. It was first overseas branch of C C Wakefield & Company and it started as a trading unit.

Castrol India is the second largest player in the Indian Lubricant Industry with a market share of around 22% and is the market leader in the retail automotive lubricant segment.

Ownership:

Castrol India Limited is a Public Limited Company with 70.92% of the equity held by Castrol Limited UK (part of BP Group).The FII’s and Insurance Companies hold 7.27% and 5.04% respectively, as on 31st March 2011.

If we go by the trend of the last 4 SHPs posted, FIIs have increased exposure in the stock along with the Institutions. On the other hand DIIs, Non Institutions and Bodies Corporate have shed their stakes in the similar time frame.

Product Profile:

•   Industrial - Castrol metalworking fluids, cleaners, corrosion preventives and lubricants.

•  Oils - Cylinder oils-crosshead, crankcase oils-crosshead, truck piston engine oils,   hydraulic oils, gear oils, compressor oils, turbine oils, refrigeration oils, emulsifiable oils, multi-grades, heat transfer oils and greases.

 

Recent Corporate Actions:

* The 150% dividend comprises of 50% final dividend and 100% special dividend.

For the year ending December 2010, company has declared an equity dividend of 150% amounting to Rs. 15 vis-à-vis an equity dividend of 250.00% amounting to Rs. 25 per share for the year ending 2009.

Financials:

Quarterly

                                 Figures (In Crores), Fiscal Year End is Dec-31

QoQ Analysis: Analyzing Q1 numbers for this fiscal, the topline has shot up by 7.89% at 753.2 Crores (31-March-11) and bottom-line has increased 29% at 136.6 Crores (31-March-11).The operating profit of the company has also risen 15.86% to 181.9 Crores vis-à-vis 157 Crores in the previous quarter. The profitability has increased, despite the fact that total expenses has risen 5.58% on a Q-o-Q basis. PBITDM (%) and PATM (%) has shown a decent increase on a quarterly basis.

YoY Analysis: On comparing the Q1 numbers of this fiscal with Q1 of FY10-11, the topline has increased by 14.82% on a Y-o-Y basis. The bottom-line has increased impressively by 16.55%, despite the fact that total expenses has also risen by 20.02% in a similar time-frame. The rise in total expenses is primarily attributable to increase in raw material cost. Though the other income component has also contributed it’s bit in the increased profitability.

Yearly

 

                   Figures (In Crores), Fiscal Year End is Dec-31

 

Analyzing the yearly numbers, the sales figure has shot up 17.82% to Rs. 2742.90 Crores as on December-10. The operating profit has shown up a whopping increase of 25.29% to 733.2 Crores vs. 585.2 Crores in the previous FY end, considering the fact that total expenses has increased 15.31% to 2009.70 Crores.

CAGR basis: On a CAGR basis, the company has posted an awesome increase of 34% in the last 5 years. The sales have also increased 8% on a CAGR basis. The operating profit has also risen at a rate of 9.71% despite the fact that total expenses have also risen at the rate of 7% in the same tenure.

Returns:

The recent quarter has been the best quarter in the previous 4 quarters, posting returns of 19.12%. The last quarter of calendar year 2009-10 was the worst quarter, posting returns of -9.44%.

The stock has posted YTD returns of 14.64% till 30-Jun-11 and 18.83% returns as on 30-jun-11 on a year-on-year basis.

The stock has made a new 52 week high of 588.35 on BSE today itself and closed at 576.80, rebounding impressively from it’s 52 week low of 380 on BSE which was achieved off late on 28-Feb-11. The stock has posted humongous returns of 51.78% since then and that too in a very short span of time.

• Castrol India Ltd. has posted impressive growth in topline and bottom-line over the years even in the tough times. The surge in raw material expenses continues but company has still posted a robust growth in Operating Profit.

• Besides this, company has strong brand power in the markets and enjoys a debt free status, high ROEs, distinctly superior delivery of products and improving cash flows. Considering these factors a higher PE multiple for the company vis-à-vis its peers is justified.

• Last but not the least, company enjoys a brand-loyalty and the promoters also have vast experience and expertise in this industry.

References:

1) http://economictimes.indiatimes.com/

2) http://www.bseindia.com

3) http://www.castrol.com

4) http://www.finalaya.com/

Outlook: