Voltas Ltd: Breaks Out

CMP: Rs.112.05

Voltas Ltd, a Tata Group enterprise, is one of the world's premier engineering solutions providers and project specialists. Founded in India in 1954, Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, materials handling equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality.  Voltas Ltd,  is India's largest exporter in the field of electro-mechanical projects. Voltas Ltd manufactures one of India's leading air conditioner brands. Voltas Ltd leads in sourcing, installing and servicing state-of-the-art textile machinery in India. Voltas Ltd is also a leader in forklift trucks, manufactured to in-house design .

The Company's strengths lie principally in: 

(i) management and execution of electro-mechanical projects, including air conditioning and refrigeration;

(ii) the design and manufacture of industrial equipment, cooling appliances and materials handling equipment;

(ii) sourcing, installation and servicing of diverse technology-based systems serving Indian industry through representation of global technology leaders. 

The company has an enviable order book of around Rs.3000 Cr. The company continues to outperform in the following businesses: Textile Machinery, Materials Handling,  Mining and Construction  projects, etc. In the Mining  business, the focus has been more on maintenance and operation  contracts and stock and sale of spares and accessories. A significant  achievement of the business during the year, FY11 was its entry in Mozambique  for providing the Maintenance and Operations Services. 
In FY11, exceptionally severe summer and the generally upbeat consumer  sentiment in the early part of the year helped in significant  improvement in volumes of Airconditioners, where the growth in  Company''s volumes continued to be higher than the industry, resulting  in an increase in the market share, from 15% to around 18%. With the summer in the offing, the company's products will be in demand in the near future. In FY11, some  large projects like Burj Khalifa were completed. The  liquidity position of the Company continues to be satisfactory with liquid investments of Rs.225 crores as of 31st March, 2011. The Company also ensured that surplus funds are used to reduce borrowings of its  subsidiary companies so that the overall cost of funds is minimized. 

What is interesting is that higher interest  rates in India, is benefiting the company in terms of interest earnings on surplus funds.  Management will focus its attention in the future to bring down the  levels of inventories and receivables and thereby release cash in the system.  Investment of surplus funds, is being regularly monitored by  the Investment Committee of the Board, so as to maximize the returns  while ensuring low risk.

The Company has taken various IT initiatives and SAP modules implemented for the international Electro- mechanical business have  started showing benefits in terms of better budgetary control. The Primavera project management system has yielded better visibility of project schedules and variances. Customer Relationship Management (CRM) software for the domestic  Electro-mechanical business helped in better tracking of service calls  and service SLAs for maintenance projects. Project dashboards prepared  in SAP Business Objects yielded better control on project costs and  working capital of domestic Electro-mechanical as well as Mining &  Construction Equipment businesses.

Any reduction, in tension in the Middle East, where most of the  Company's subsidiaries/joint ventures (JV) operate, will help improve the company's financials.

If we look at the shareholding pattern of the company we would see that  Tata Sons Ltd and Tata Investment Corporation Ltd respectively holds, 26.64% and 2.86% of the shares of the company. Also, the fact that, Government Pension Fund Golbal holds 3.73% of the shares of the company indicate, the level of safety of investing in the shares of the company for the longer term horizon. Moreover, many insurance companies are holding shares of the company including LICI,  ICICI Prudential Life Insurance Ltd, LIC of India Market Plus, General Insurance Corporation of India Ltd,  New India Assurance Company Ltd and Birla Sun Life Insurance Company Ltd. This speaks lot about the company's fundamentals.

Voltas Ltd: Breaks Out

CMP: Rs.112.05

Voltas Ltd, a Tata Group enterprise, is one of the world's premier engineering solutions providers and project specialists. Founded in India in 1954, Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, materials handling equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality.  Voltas Ltd,  is India's largest exporter in the field of electro-mechanical projects. Voltas Ltd manufactures one of India's leading air conditioner brands. Voltas Ltd leads in sourcing, installing and servicing state-of-the-art textile machinery in India. Voltas Ltd is also a leader in forklift trucks, manufactured to in-house design .

The Company's strengths lie principally in: 

(i) management and execution of electro-mechanical projects, including air conditioning and refrigeration;

(ii) the design and manufacture of industrial equipment, cooling appliances and materials handling equipment;

(ii) sourcing, installation and servicing of diverse technology-based systems serving Indian industry through representation of global technology leaders. 

The company has an enviable order book of around Rs.3000 Cr. The company continues to outperform in the following businesses: Textile Machinery, Materials Handling,  Mining and Construction  projects, etc. In the Mining  business, the focus has been more on maintenance and operation  contracts and stock and sale of spares and accessories. A significant  achievement of the business during the year, FY11 was its entry in Mozambique  for providing the Maintenance and Operations Services. 
In FY11, exceptionally severe summer and the generally upbeat consumer  sentiment in the early part of the year helped in significant  improvement in volumes of Airconditioners, where the growth in  Company''s volumes continued to be higher than the industry, resulting  in an increase in the market share, from 15% to around 18%. With the summer in the offing, the company's products will be in demand in the near future. In FY11, some  large projects like Burj Khalifa were completed. The  liquidity position of the Company continues to be satisfactory with liquid investments of Rs.225 crores as of 31st March, 2011. The Company also ensured that surplus funds are used to reduce borrowings of its  subsidiary companies so that the overall cost of funds is minimized. 

What is interesting is that higher interest  rates in India, is benefiting the company in terms of interest earnings on surplus funds.  Management will focus its attention in the future to bring down the  levels of inventories and receivables and thereby release cash in the system.  Investment of surplus funds, is being regularly monitored by  the Investment Committee of the Board, so as to maximize the returns  while ensuring low risk.

The Company has taken various IT initiatives and SAP modules implemented for the international Electro- mechanical business have  started showing benefits in terms of better budgetary control. The Primavera project management system has yielded better visibility of project schedules and variances. Customer Relationship Management (CRM) software for the domestic  Electro-mechanical business helped in better tracking of service calls  and service SLAs for maintenance projects. Project dashboards prepared  in SAP Business Objects yielded better control on project costs and  working capital of domestic Electro-mechanical as well as Mining &  Construction Equipment businesses.

Any reduction, in tension in the Middle East, where most of the  Company's subsidiaries/joint ventures (JV) operate, will help improve the company's financials.

If we look at the shareholding pattern of the company we would see that  Tata Sons Ltd and Tata Investment Corporation Ltd respectively holds, 26.64% and 2.86% of the shares of the company. Also, the fact that, Government Pension Fund Golbal holds 3.73% of the shares of the company indicate, the level of safety of investing in the shares of the company for the longer term horizon. Moreover, many insurance companies are holding shares of the company including LICI,  ICICI Prudential Life Insurance Ltd, LIC of India Market Plus, General Insurance Corporation of India Ltd,  New India Assurance Company Ltd and Birla Sun Life Insurance Company Ltd. This speaks lot about the company's fundamentals.

IFCI LTD: READY TO PERK UP

The Explosive Chart of IFCI Ltd

IFCI Ltd during the FY11, accelerated its operations  and re-established its presence in the financial market by enlarging  and retaining high value customer base.  The business model adopted by IFCI has been guided by maximization of return on investment, while maintaining  emphasis on due diligence, as well as appropriate risk mitigants.  High  yielding short term lending, backed by strong and easily enforceable  security of highly rated companies, formed the key strengths helping  the Company to expand its asset base without any Non Performing Assets  (NPAs). It will continue to explore possibilities for new  business in the short and medium term with the aim of establishing a  niche market for itself in financial products like loans against liquid  securities, working capital gap, pre-operative expenses, acquisition, financing and participation in QIPs and IPOs.
The Government of India has developed an ambitious plan for  infrastructure investment, involving both public and private sector. Developing roads, ports, power generation and transmission infrastructure forms an integral part of the plan.  Furthermore, there  is an increased focus on evaluating new sectors in Indian  infrastructure and developing an infrastructure advisory division for providing holistic solutions to existing and potential clients. In  keeping with the dynamics of the sector, the Company's Project  Development Group (PDG) has scouted for the best investment opportunities in the Indian infrastructure space. The group proposes to  make further investments in infrastructure while nurturing projects in  its portfolio. 

While adding to its existing portfolio of investments in  roads, thermal power and hydro power generation, the group has forayed into power transmission, solar power generation and wind energy  generation through its investments during FY 2010-11 and is looking  forward to investing in the logistic sector.
The Company has also strengthened the Treasury team by creating a dedicated Research Desk for making better and more informed investment decisions with the aim of maximizing profits in all treasury operations. The Treasury Department has been equipped with necessary tools and technology to meet the challenges in the rapidly changing environment. 

It has also initiated operations in new segments viz. Collateralized Borrowing & Lending Obligation (CBLO) and Overnight Interest Swaps (OIS) to manage liquidity risk. So, any fall in the interest rate could be positive for the company.
The Company, after strengthening the activities of its Corporate Advisory Group, has diversified in areas of high value segments of financial consultancy. As a result, currently, IFCI provides the entire gamut of financial advisory services to clients across different sectors of the economy.
IFCI has been able to create a space for itself in the niche bid advisory segment, where only a handful of global consultants have the expertise to provide consultancy services for competitive tariff based power projects, Ultra Mega Power Projects (UMPP), City Gas Distribution (CGD), Gas Pipeline Projects etc. During the current FY 2011-12, the thrust would be to get more Transaction Advisory assignments in the infrastructure sector, which will provide the impetus to further expand the footprints of IFCI in advisory business.
IFCI is the nodal agency for channelizing the Sugar Development Fund (SDF) Loans of the Government of India. The Company, besides financial appraisal for SDF loans, disinvestment and monitoring, is exploring new avenues to increase fee based income by providing consultancy to sugar industry in almost every area, which includes restructuring, syndication and getting technical and financial partners; both to private and co-operative sector and preparing schemes for sugar factories to avail assistance from SDF for cane development activities.  During the year 2010-11, fee based income from financial  appraisals for SDF assistance, was higher by about 49% vis-a-vis  previous year, as a result of continued efforts made in this direction.

The Company, consequent on its demonstrated success in NPA resolution, took the initiative for the acquisition of NPAs from Banks/other FIs  after complying with RBI guidelines on the subject.
The company acquired NPAs from Banks/other FIs, and earned attractive returns. The  Company proposes to acquire further NPAs from Banks/other FIs by way of  participating in public auction and/or through bilateral deals, to  ensure that the momentum of earning profit with a substantial return is  maintained. Innovative strategies are being adopted for the resolution  of NPAs including assets under the control of Official Liquidators and  companies before BIFR.

The Company has been continuously posting profits and is dividend paying. The capital adequacy ratio of the Company as on March 31, 2011, at 16.4% looks comfortable. The Company is poised to raise  resources in a big way to ensure accelerated growth in the years to come.

As per the study carried out by ''The Economic Times and Great Place to Work Institute'', on India's Best Companies to Work for-2011, the Company, for the second consecutive year, maintained its position as third best place to work for in the Financial Services Sector.
IFCI Ltd is keeping a close watch on the various developments in connection with the issue of new Banking Licenses and evaluating its strategy for foray into the Banking arena.
The Company, in order to provide the requisite fillip to more  effective management development in relation to significant and growing  sectors of the economy, established Management Development Institute  (MDI) in 1973 and another campus of MDI is now proposed to be set up at  Murshidabad, West Bengal for which the foundation stone was laid by the  Honourable Finance Minister of India on October 31, 2010. An MoU was  signed between MDI and the Company in this regard. MDI has now emerged  as one of the most prominent Business Schools of the country and as per  CNBC Survey for the year 2011, it ranked 5th among the top 10 business  institutes of the country. MDI is also in the process of acquiring land  in Bengaluru for setting up a third campus.
The Technical Consultancy Organizations (TCOs) promoted by the Company  provide a complete set of consultancy services in the areas of project  conceptualization and other related services, credit syndication,  preparation of various project specific agreements including credit  documents, restructuring of projects, valuation of assets, stock  audits, assessment studies on working capital, project monitoring consultancy, securitization services and secretarial assistance, in conducting training, entrepreneurship development programmes. 

IFCI is  the lead promoter Institution for MPCON, HIMCON, HARDICON and NITCON. 

IFCI Infrastructure Development Ltd (IIDL): IFCI Infrastructure Development Ltd (IIDL) had been promoted as a wholly owned subsidiary of the Company, as an instrument for unlocking  value from real estate held by IFCI by way of its office and  residential properties, acquiring valuable and strategic real estate in the process of recovery from NPAs of IFCI and availing new  opportunities in real estate development through development  authorities. Over the years, IIDL has expanded its asset base by  purchasing assets and intensifying development work on such assets at  various geographical locations in the country and made its presence  felt on a pan India basis. IIDL, with its implementation of projects like Service Apartment  Project at Delhi, Hotel Project at Lucknow, Financial City project at  Bengaluru and residential projects in NCR and Kochi, is one of the  growth engines in the development of real estates and infrastructure, to which impetus is given by Government of India. IIDL has also secured an important opportunity to participate in the  development of a food park approved by the Ministry of Food &  Processing Industries, Government of India during FY11. IIDL has also formed a Special Purpose Vehicle (SPV) named JANGIPUR BENGAL MEGA FOOD  PARK for the development of the food park. During the year 2010-11, there was a growth of 86% in the company''s assets base, which went up to Rs.640.05 crore as against Rs.344.04 crore at the end of previous year. The net profit increased by 7.98%, which was at Rs.4.33 crore during the year FY11 as against Rs.4.01 crore during the previous year. The gross income of the company was Rs.29.32 crore despite the generally slow recovery rate in the real estate sector during the FY11.
IFCI Venture Capital Funds Ltd (IVCF): IFCI Venture Capital Funds Ltd was set up by the Company in the year 1975 with a view to promoting entrepreneurship by providing risk capital mainly to first generation entrepreneurs/technocrats to help them setup business projects. Later on, IVCF started providing capital support to Small and Medium Enterprises (SMEs) towards initial capital and growth. Since inception, it has supported entrepreneurs by  providing start-up/growth capital for setting up more than 400 projects across India. IVCF closed three private equity/venture capital funds, launched in 2008, with aggregate corpus of Rs.512 crore on June 30, 2010. During the year 2010-11, the entity sanctioned an amount of Rs.395.14 crore and disbursed Rs.292.14 crore out of the aggregate corpus fund. IVCF registered a growth of 166% in Profit after Tax at Rs. 13.14 crore (Rs. 4.94 crore) in 2010-11 over previous year.
IFCI Financial Services Ltd (IFIN): IFIN is engaged in Stock Broking, Investment Banking, Mutual Fund Distribution and Advisory Services, Depository Participant Services and Insurance Products. IFIN continued to grow both organically and  inorganically.  The retail branches of IFIN at the end of the year (FY11) increased from 25 to 42. The size of operations has also increased considerably and reasonable growth was registered in the institutional  services. A growth of 26.89% was registered in company's income from  operations, (in FY11) at Rs.33.13 crore as compared to Rs.26.11 crore during previous year. During the year 2010-11, the authorized share capital of the company was raised from Rs.28.25 crore to Rs.50 crore.
IFCI Factors Ltd (IFL): IFCI Factors is one of the first members of Factors Chain International from India. It has pioneered the export factoring business in India and  is also providing domestic factoring services, through which it is steadily replacing the hitherto conventional modes of working capital finance in the banking space. IFL achieved a turnover of Rs.2,683 crore, funds in use of Rs.856 crore and net profit of Rs.20.1 crore, registering a growth of 131% in turnover, 183% in funds in use and 90% in net profit over the corresponding numbers of financial year 2009-10, whereby the year under review had been yet another significant year. IFL hopes to maintain the momentum in growth in future and aims to become one of the major players in the factoring industry in India in the next 3-5 years. The factoring business globally grew by 28% in the year 2010 at Rs.1648 billion as compared to Rs.1283 billion in previous year, though the Indian factoring volume grew only at 4% at Rs.2.75 billion (¤ 2.65 billion). With India's market share of 0.77% in Asia, there is vast scope for factoring business in India. However, it is going to be a continued challenge for factoring companies to raise appropriately priced funds to create quality domestic and export factoring assets and appropriately structure deals to de-risk business in the absence of supportive factoring legislations in India.  The proposed Factoring Bill, if passed, is expected to create a conducive environment for further development of the factoring industry in India.
MPCON Ltd: MPCON is providing consultancy services to small and medium enterprises, individual entrepreneurs, Government Departments and agencies, various state level institutions, commercial banks and other institutions in the States of Madhya Pradesh, Rajasthan and Chhattisgarh. The company is specialized in small business, training  and skill development. During the year 2010-11, the total income of MPCON grew by 19.18% at Rs. 8.61 crore. The project consultancy income  grew by 121% during the period and stood at Rs.2.86 crore which constituted 33.28% share in total income. Training programmes and others constituted 65.11% share and stood at Rs.5.60 crore (Rs. 5.14 crore). The profit after tax of MPCON grew by 80.14% in the  year 2010-11 and stood at Rs. 0.46 crore.
Industry Structure & Development: The industrial sectors in which the Company has major exposures and  which include power generation, service sector and other  infrastructure/logistics, have performed satisfactorily. Government of  India, under the ''National Action Plan for Climate Change'' (NAPCC) has identified measures that promote its development objectives, while yielding co-benefits for addressing climate change effectively. These developments translate into potential investment opportunities in roads, ports, renewable energy and the power sector at large. The prospects of other sectors in which the Company has major exposures, viz., iron and steel, petroleum refining, construction and real estate have improved with the upswing in economic activities. IFCI, being categorized as an NBFC-ND-SI (Non-Banking Financial Company-Non Deposit taking Systemically Important) by RBI, has to compete, in the area of project finance, with Banks and Financial/Investment Institutions. The Company, having embarked upon substantial asset creation in FY 2008-09, after a gap of 10 years, has been able to re-establish business relationships with several major industrial houses in the country by extending financial assistance.
The Company has endeavored to maximize returns, with the in-house experience in infrastructure projects, by investing by way of loans with a mix of equity, mezzanine and sub debt. During FY 2010-11, looking to the maturity profile of its existing liabilities, IFCI has sanctioned term loans of one to three years duration mainly to meet the short term fund requirements of companies with excellent track record, for general corporate purposes, investment in subsidiary company/(s), acquisition, subscription to rights issue, purchase of warrants, refinancing of high cost debt, pre-operative expenses for project implementation, etc. against adequate security.
Apart from fund based activity, the Company also ventured into non-fund based activities like advisory services, syndication, underwriting etc. In order to retain and enlarge the customer base, endeavours were made to develop such products which cater to the needs of corporate clients.
The Company, during the year, also ensured improvement in various other operational areas like Treasury and Investments and posted substantially higher level of revenue and profits.
The details of various developments are given here under:
Approvals and Disbursements: During the FY 2010-11, total fund based approvals were Rs.13,208.50  crore as against Rs.6,765.56 crore in the previous year registering a rise of 95.23%. Out of the above approvals, an amount of Rs.3,262.25  crore (24.69%) was by way of rupee term loans, Rs.3,111 crore (23.55%)  by way of corporate loans, Rs.945 crore (7.15%) by way of short term  loans and Rs. 1,460 crore (11.05%) by way of debenture. The amount  approved towards equity and other investments was Rs.4,430.25 crore  (33.54%). Total disbursements during FY 2010-11 amounted to Rs. 8,399.39 crore compared to Rs. 6,053.82 crore in the previous year registering a rise of  38.75%. Out of the said disbursement, Rs. 2,028.06 crore (24.14%) was by way of rupee term loans, Rs. 3,034.20 crore (36.12%) by way of corporate loans, Rs.1,150.45 crore (13.69%) by way of short term loans, Rs.110 crore (1.30%) by way of debenture and Rs. 2,076.68 crore (24.72%) by way of equity & other investments.
Treasury and Investment Operations: During the FY 2010-11, the Company earned an income of Rs.139 crore from fixed market operations. While the avenues of investment were broadened for earning higher return, safety and liquidity were the prime criteria behind all investment decisions. The Company was able to achieve returns at par with/higher than the market returns of top rated instruments with similar maturity. During the year FY11, operations in Collateralized Borrowing and Lending Obligation and Overnight Interest Swaps were also introduced.
In foreign currency operations, the Company managed its exposure in  foreign exchange reasonably well by taking appropriate forward covers. The foreign exchange position was nearly hedged throughout the year. The Company did not have any exotic derivatives exposure in equity/debt or foreign exchange market.
In equity operation, the Company continued with the strategy of selective disinvestment of slow moving/illiquid stocks and strengthening the portfolio through selective investment in frontline and mid cap stocks. While improving the quality of the portfolio, in FY 2010-11 the Company earned a profit of Rs. 325.39 crore from equity operations. Net investment portfolio of the Company as on March 31, 2011 stood at Rs.8,005.56 crore which is substantially higher than the net investment amount of Rs. 5,882.43 crore as on March 31, 2010.
The Company embarked on an ambitious drive of raising Rs.5,000 crore during FY 2009-10 by way of bond issuance and bank loans. Buoyed by the success in FY 2009-10, the Company set a higher target for FY 2010-11 and mobilised Rs.7,000 crore. The remarkable feat was achieved through successful nurturing of relationship developed by the Company with different market participants. The overwhelming response of investors to the maiden Infrastructure Bond issuance program of the Company demonstrates the goodwill and confidence enjoyed by the Company among investors.
Management of Non-Performing Assets: The Company continued to exploit aggressively all channels available to it to reduce its NPAs and was successful in doing so. This is evidenced by NPA recovery of more than Rs.338 crore surpassing the recovery budget, of which Rs.263 crore was by One Time Settlement (OTS) and Assignment and Rs.75 crore through Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act (SARFAESI) and legal route. In future, the Company has to meet new challenges in resolving NPA  where it holds minority stake and action under SARFAESI is difficult due to non-receipt of consent from other secured creditors pursuant to  settlement with them by company. IFCI intends to resolve these NPAs by adopting DRT and High Court route among other recourse available to it.
Financial Performance:  The Company''s profit before tax of Rs.1,166 crore in the year, FY11,  is higher by 5% as compared to Rs.1,115 crore in the previous year  mainly on the strength of creation of fresh assets since April 2008.  Profit after tax of Rs.706 crore for the year has also shown a growth of 5% over previous year's profit after tax of Rs.671 crore.  Standard loans to borrowers which stood at Rs. 6,425 crore as at April 1,  2008 have shown CAGR of 35% and stand at Rs.15,942 crore as at March 31, 2011. The growth over the previous year's standard loans to borrowers of Rs.11,022 crore is 45%. Total assets have also increased to Rs.25,915 crore in the current year from Rs.19,589 crore in previous year registering a growth of 32%. Satisfactory levels have been maintained for key financial ratios viz. interest margin, capital adequacy ratio, debt-equity ratio, debt service coverage ratio, net worth, etc. Basic EPS increased to Rs.9.6 per share for the year FY11, vis-a-vis Rs. 9.1 per share for the previous year. Book Value (excluding Revaluation Reserve) also increased to Rs.51 per share as at March 31, 2011 from Rs. 42.7 per share as at March 31, 2010 (FV Rs. 10/-). For Q3FY12, the total income of the company came out to be Rs.680.4 Cr as against Rs.640.06 Cr in the same period previous year. The net profit of the company came out to be Rs.114.05 Cr in Q3FY12 as against Rs.152.92 Cr in the same period previous  year. The EPS of the company for 9MFY12 came out to be Rs.6.02. For the full year, FY12, the company is expected to come  up with an EPS of around Rs.9. Moreover, the Company's quality of assets continued to be excellent.  The ratio of net NPAs to net advances was as low as 0.97% as at March 31, 2011.
Opportunities, Threats and Future Outlook: IFCI Ltd is well poised to expand and diversify its operations and  performance in accordance with its business strategy. It will continue to explore possibilities for new business for short term and medium term with the aim of establishing a niche market for itself in products like short and medium term loans against liquid securities, take-out finance and debt swapping. In addition to the normal lending activities, the Company continues to concentrate on private equity participation, project development activities, non-fund based income from advisory services, syndication, underwriting of loans, acquisition of NPAs from other lenders and thrust on the activities of subsidiaries/associate companies.
IFCI, as an NBFC-ND-SI, has developed for itself niche products, covering the entire range of capital structure including debt, equity, equity related products, mezzanine instruments etc. of short, medium and long term duration.
The overall economic scenario in the country is expected to improve and inflationary pressure is likely to come down resulting in the lower cost of funds and improving profit margins. Also, owing to strong growth in the balance sheet without NPAs, it would continue to improve its top line and bottom line.

On the power front, there exists a huge demand-supply gap with an all India average energy shortfall of 7% and peak demand shortfall of 12%. There is over 90,000 MW of new generation capacity required in the next seven years with over 150,000 MW of hydro power yet to be tapped.
Additional 60,000 circuit km of transmission network is expected by 2012. Power generation and transmission will continue to be a potential sector for investment by the IFCI Ltd.
There is an annual growth of 12-15% projected for passenger traffic and a growth of 15-18% for cargo traffic.  Covering 66,590 km, highways/expressways constitute only 2% of all roads and carry 40% of the road traffic. This clearly indicates the scope for further development of highways. 
The Company shall leverage on its experience in bidding for attractive road projects across India. Growth in merchandise exports projected at over 13% p.a.  underlines  the need for large investments in port infrastructure. It is expected  that 95% of foreign trade by volume and 70% by value would be through  the maritime route. The New Foreign Trade Policy envisages doubling of India's share in global exports in next five years to USD 150 billion.
IFCI Ltd shall continue to aggressively pursue project development  activities in the infrastructure projects by way of participating in equity as promoter/co-promoter. This endeavour is expected to result in  ample opportunities in future where the Company can involve itself in appraisal, underwriting, syndication of debt/sub-debt, equity, etc. besides acting as the lenders'' agent. The said areas would improve the overall return by way of non-fund based income such as underwriting, syndication fee etc. The Company would continue its endeavour to establish/ re-establish relationship with corporate houses of repute and standing so as to exploit emerging business opportunities during the days to come.
IFCI Ltd with its present business model, does not envisage any major challenge in the short as-well-as medium term perspective. In the emerging scenario arising out of Government's move to modify regulatory requirements which is expected to provide the opportunity to different players to be more pro-active for economic development of the nation, the Company has geared up to find its "niche" area.
Risk Management Managing various types of risks is an inherent part of IFCI's business. Business and revenue growth have to be viewed in the context of the  risks implicit in the Company's business strategy. Recognizing this,  the Company has continued its endeavor to have in place a robust and integrated risk management system. The risk management strategy is  based on a clear understanding of various risks, a multiplicity of risk  assessment and measurement procedures and continuous monitoring. Forming part of the risk management architecture of the Company, the  Risk Management  Committee of Directors is overseeing all the risks viz. credit, market, liquidity and operational risks and any other risks, assumed by the Company. The Committee guides the development of policies, procedures and systems for managing risk at the organizational level.
The Audit Committee of Directors provides direction and monitors the  quality of the internal audit function and compliance with systems and  procedures. At the executive level, a Risk Management Committee of  Executives has been constituted to facilitate overseeing of various risks in a focused manner, supported by an independent risk management  function that looks after all aspects of enterprise-wide risk  management. The risk management function endeavors to anticipate vulnerabilities at the transaction level or the portfolio level, as  appropriate, through quantitative or qualitative assessment of inherent  risks. Appropriate structure, approved policies and procedures and  review processes are in place through which risk is managed. A
well-established, effective and independent internal control mechanism exists for supplementing the risk management systems to build risk consciousness and discipline into decision-making throughout the Company.
Being primarily a lending institution, credit risk is the most important for IFCI and therefore, the Company has put in place comprehensive credit risk management architecture. With appreciable augmentation of credit portfolio during the year FY11, systems and controls are in place, to mitigate credit risks including exposure limits for borrowers, borrower groups, industrial sectors, multi-tier credit appraisal system, risk-based monitoring system, committee system for considering proposals and detailed risk assessment of new proposals, which have been further strengthened commensurate with the volume of business activities. Emphasis is placed on both, evaluation and containment of risk for individual exposures and analysis of the portfolio behaviour. The loan policy and risk management policy of the Company is reviewed periodically keeping in view the changing economic and business environment. Periodic reviews of existing products and services are carried out with a view to continuously monitoring the risks and assisting in control management. Overall portfolio quality and high risk exposures are also monitored periodically.
The Company undertakes analysis of industries/sectors where the  exposure levels are sizable as also to evaluate and capitalize on  business opportunities in the prospective/ sunrise sectors.
As a part of loan review mechanism, credit audit of a majority of the  standard assets with exposure of Rs.50 crore and above, was taken up  during the year FY11, with the objective of detecting weaknesses, if any, in these exposures and initiating timely corrective action. The credit audit exercise also provides the top management with information on quality of credit administration including credit sanction process, risk evaluation and post-sanction follow-up. The Company continues to undertake reviews of large borrower accounts and related industries/sectors on a regular basis with the objective of  monitoring and managing the risk in the portfolio. In another initiative towards effectively monitoring the standard asset portfolio, rapid analysis of quarterly results of assisted concerns, with particular focus on assessing cash flows and debt servicing capacity as also detecting early warning signals, if any, were carried out during the year, FY11. Credit exposures are managed through target sectors/corporate/group identification, appropriate credit approval processes, post-disbursement monitoring and remedial management procedures.
In order to make the risk management system more robust as also a best  practice, the Company has initiated steps to adopt and make internal  credit risk rating models an integral part of the credit assessment  process. The use of these models is being disseminated at an  organizational level for measuring credit risk in new business  proposals and existing loan portfolios. The internal rating models, based on two-dimensional rating methodology, have the capacity to estimate probability of default (PD), loss given default (LGD) and expected loss (EL) in a specific loan asset. During the year FY11, the internal rating process has been streamlined for achieving faster turnaround time and accelerating credit delivery. From a  portfolio monitoring perspective, the internal rating along with the size of the exposure would determine the monitoring frequency applicable to the exposure in line with the policies approved by the Board. With a view to initiating the process of monitoring the loan  portfolio using these models, ratings of select standard cases were carried out during the year, FY11.
The market and liquidity risk is managed by the Asset & Liability Committee (ALCO) through analysis of structural liquidity gaps and interest rate sensitivity positions and deployment of surplus funds by Treasury besides approved limits and triggers for various types of deployment. The investment policy of the Company is reviewed periodically in the light of the prevalent market scenario. To manage the operational risks, there are adequate internal controls and systems in place aided and assisted by internal audit, remote back-up of data, disaster management policy and appropriate insurance.
Going forward, with the growth of business and augmentation of loan portfolio, risk management at IFCI would assume a larger and more complex role. The Company would continue to work on various initiatives which would not only help to develop a more robust risk management framework but also inculcate a strong culture for risk management and awareness in the Company. The steps taken would streamline the mechanism for effective overall institutional risk management at IFCI. 
Nominee Directors: Appointment of Nominee Directors on the Boards of assisted concerns has been a long and well established practice for Institutions and Banks with a view to monitoring the  performance of their borrower companies. The basic objective of such appointments is to help build up professional management and facilitate effective functioning of the Board of Directors as well as formulation of proper corporate policies and strategies to improve productive efficiency and promote long term growth of the assisted companies, keeping in view the overall interest of the shareholders and financial institutions. The feedback reports received from Nominee Directors act as a useful tool for credit monitoring. The system of Nominee Directors is functioning effectively in the Company.

Resources:  The Company continued the initiative of increased levels of resource mobilization programme undertaken during the year 2009-10.  During the year 2010-11, an amount of Rs.7,000 crore was mobilized  mainly by way of rupee bank facilities and private placement of bonds  at competitive rates.

Last year in September, there were media reports that the Indian non-banking finance company (NBFC) IFCI Ltd is eminently eligible to get  the proposed new banking license from the Reserve Bank of India (RBI) given the firm financial strength of the company. "I have mentioned many times earlier that we believe banking was our destiny... Right now, in terms of our financial strength, our ability to manage new businesses, we find ourselves internally to be capable of taking up banking as a viable business option," Chief Executive Officer and Managing Director, Mr.Atul Kumar Rai told a business channel in September, 2011. For more on this, CLICK HERE.
Conclusion: Thus looking from all angles the investors can buy the scrip at the current price of Rs.42.20, for a target of Rs.75 in the next 6 months time frame; which gives an appreciation of around 75% over the CMP. However, if it is able to garner a banking license then the scrip move above Rs.100, in the coming days. Therefore use, every dips to buy the scrip and accumulate. I have been advocating a buy on the scrip since the price of Rs.25. 
Note: This write-up appeared on 23rd March, 2012, on the blog: www.sumanspeaks.blogspot.com.

Cloud Computing and Allied Digital Services Ltd

The Economic  Times, 28th February, 2012.

It is a well known fact that, the next phase of growth in case of Allied Digital Services Ltd (ADSL) would come from Cloud Computing Services, apart from its other services. The company in this direction, have appointed a new CEO, Mr.P Shah. 

“True ROI value, apart from the direct cost savings, can make a success story only if the organization adopts a maturity roadmap in terms of people and processes apart from technology upgrades. Like in our private cloud solutions, we help businesses transform their existing infrastructure to an agile environment that is well- aligned business needs. Clear predictive cost planning, infrastructure elasticity and operational efficiency add value to your business," informs Paresh Shah, Global CEO of Allied Digital.

Understand That Crises Are Inevitable

"History provides a crucial insight regarding market crises: They are inevitable, painful, and ultimately surmountable"~~Shelby M.C. Davis, Advisor and Founder, Davis Advisers

History has taught that investors in stocks will always encounter crises and uncertainty, yet the market has continued to grow over the long term. 

Investors in the 1970s were faced with stagflation, rising energy prices and a stock market that plummeted 44% in two years. 

Investors in the 1980s dealt with the collapse of the major Wall Street investment bank Drexel Burnham Lambert and Black Monday, when the market crashed over 22% in one day. 

In the 1990s, investors had to weather the S&L Crisis, the failure and ultimate bailout of hedge fund Long Term Capital Management and the Asian financial crises. Investors in the beginning of the 2000s experienced the bursting of the technology and telecom bubble, 9/11 and the advent of two wars. 

Today, investors are faced with the collapse of residential real estate prices, economic uncertainty and a turmoil in the financial services industry. Through all these crises, the long-term upward progress of the stock market has not been derailed.
Investors who bear in mind that the market has grown despite crises and uncertainty may be less likely to overreact when faced with these events, more likely to avoid making drastic changes to their investment plans and better positioned to benefit from the long-term growth potential of equities.

It is worth mentioning here that Shelby Cullom Davis borrowed $100,000 in 1947 and turned it into an $800 million fortune by the year 1994. 

An identical statement was made by, Christopher C. Davis, Portfolio Manager, Davis Advisers: “Despite inevitable periods of uncertainty, stocks have rewarded patient,long-term investors.” One of the most common attributes among great investors is patience.
Intelligent investors recognize that while the mood of the market may cause a stock price to fluctuate widely over the short term, over longer periods the value of the underlying business often asserts itself. When weathering a challenging period for the market, remember that throughout history, stocks have rewarded patient, long-term investors. Such perspective may help you avoid making a decision that can hamper your ability to reach your financial goals. 

And then how can we forget the famous quote of Warren Buffett, Chairman, Berkshire Hathaway: “Be fearful when others are greedy. Be greedy when others are fearful.” 
According to Mr.Buffet, building long-term wealth requires, a counter-emotional investment decisions–like buying at times of maximum pessimism or resisting the euphoria around investments
that have recently outperformed. Unfortunately, many study have shown that, investors as a group too often let emotions guide their investment decisions.
Great investors recognize that an unemotional, objective, disciplined investment approach, which often includes buying at times of maximum pessimism and exploring out-of-favor areas at times of maximum optimism, is a key to building long-term wealth.

Bottomline: Peter Lynch, the Legendary Investor and Author said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.” 
Market corrections often cause investors to abandon their investment plan, moving out of stocks with the intention of moving back in when things seem better–often to disastrous results. A study which compared 15 year returns of equity investors (S&P 500® Index), who remained invested over the entire period to those who missed just the best 10, 30, 60 or 90 trading days showed the patient investor who remained invested during the entire 15 year period received the highest average annualized return of 10.5% per year. The investor who missed the best 30 trading days over this 15 year period saw his return plummet to only 2.2%. Amazingly, an investor needed only to miss the best 60 days for his return to turn negative! 
Peter Lynch is known as one of the greatest stock market investors ever. His philosophy was a simple one. He would look to the marketplace for great products or great executions, and buy those stocks. He didn’t wring his hands and study P/E ratios and look for mathematical anomalies. He is known to have said: “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.”
Investors who understand that timing the market is a loser’s game will be less prone to reacting to short-term extremes in the market and more likely to adhere to their long-term investment plan.

Great investors throughout history have understood that building long-term wealth requires the ability to control one’s emotions and avoid self-destructive investor behavior. Though each of these great investors offers perspective on a distinct topic, the common theme is that a disciplined, patient, unemotional investment approach is required to reach your long-term financial goals.