RELIANCE INDUSTRIES ,RIPE FOR UP MOVE AFTER LONG UNDER PERFORMANCE ?

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by kharb, Jan 13, 2016.

  1. kharb

    kharb Well-Known Member

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    Dont fear too much about borrowed money.For many on this form ,who don't know why almost every manufacturing compny borrows,is practices in India.In many manufacturing fields there are investment allowance from govt in form of subsidy to Intrest. So inspite of compnies having cash,they borrow to take beneift, these compnies also make more returns with their cash as compare to Intrest payed,netting the difference going straight into profit.So these compnies are having more or equivalent cash in their books as compare to debt.Also compnies keep cash with equivalent debt,to be used as war chest for acquiring any opportunities by take over.Many strong compnies are requested by Banks to take debt to keep their Loan book healthy ,as their NPA goes down in % with addition of strong client..So borrowing is complex subject and is not 100% linked with requirement.So better you understand it from some banker in this form or else where as I don't understand it fully.
     
    Last edited: Apr 25, 2016
  2. darth

    darth Active Member

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    No wonder its the highly leveraged companies like JP Group etc etc which are the darling stocks
     
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  3. kharb

    kharb Well-Known Member

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    Dear Darth ,I was discussing working of cash rich finincialy strong compnies ,not finincialy overstretched highly leveraged compnies where debt is around their neck due to economical stagnation specialy inifrastructre sector. JP Associates (along with many other infra compnies ) is casualty of being carried away by Shining India Slogan by Indian politicians.
     
  4. darth

    darth Active Member

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    Since i clearly belong to the many on this forum who doesnt know, could you also clarify the nature of this subsidy to interest? Also with this anti people and industry government focus on cutting down/rationalising subsidies do you think that this subsidy on interest could get hit? Also BTW what do such companies do with the unutilised cash on their balance sheet? Let it remain idle? Put it in low yielding FDR? Invest in shares of other leveraged companies? Or what?
     
  5. kharb

    kharb Well-Known Member

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    You don't know,but for jokes you have another thread:).For detail about subsidy ,please read Industrial policy of Union govt and States including Gujrat :).
     
  6. darth

    darth Active Member

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    I dont need to be reminded of 'my' threads. The questions, they just appear as seemingly innocuous. But since they arent, i wont dilute the jokes thread. Difficult for you to detail the contents of this industrial policy in so far as they pertain to subsidy on interest is it? i thought you would rattle it off.



    Comeon for the many in here who dont know, ease of reference sake, detail just the subsidy on interest. This only is of relevance. For the other questions its ok if you dont have answers.
     
  7. kharb

    kharb Well-Known Member

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    Being a manufacturing man for decades ,I know many ,almost for every industry .But for easy reference of every one ,read about TUF for textile industry. Textiles Upgradation Fund.
     
  8. darth

    darth Active Member

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    Is the reference to what's generally termed Interest subvention.

    Am aware that this is one often used tool by governments to push private sector to contribute to the economic development of he country.

    Thank you
     
  9. kharb

    kharb Well-Known Member

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    INDUSTRY has been enjoying 5% intrest subsidy for many years.Who will be fool to deploy own cash and leave 5% Intrest subsidy.For last many years govt has keeping provisions in every budget for this Intrest subsidy.
     
  10. darth

    darth Active Member

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    Surely in this too there would requirements for industrial units / promoters to contribute to project cost. Does 100% of the project cost qualify for interest subvention under TUF? Also surely the scheme would be favouring / incentivising the labour intensive parts and or SSI's players.

    The value of money would determine whether one avails or not. On Pure financial coniderations - why would one avail of this subvention of 5%, if the gap between yield on own funds and pre subvention interest cost is more than 5%
     
  11. kharb

    kharb Well-Known Member

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    In my view corporates might have got loan at 10.5 to 11% and after 5% subsidy, net out go is 5.5 to6%.They might have made 9% tax-free on cash deployed elsewhere by their treasury depts.So smart might have got 3% extra.
     
  12. darth

    darth Active Member

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    Arre you just base your example on exactly what i said. I will not avail if the gap is more than 5% between yield (9% in your example) and pre subvention cost of loan ( 10.5-11%). Here the gap is 2% and so incremental profit (spread) of 3%. but if the company can get a loan at only 15%, then it will not avail of TUF.

    Just one correction - if its 9% tax free then increase to bottomline will be more than 3% spread.

    But rupee project term loans at 10.5-11% - Not sure how many can raise at such fine pricing.
     
  13. Karthikeyan

    Karthikeyan Member

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    Kharbji,

    With utmost regards, may I say these few words regarding TUF interest subsidy?

    TUF was there for a reason.

    After quota regime was over, it had become impossible for the textile industry to survive without modernisation. Textile Industry is not all abt Vardhamans and Welspuns.It consists of a huge population of small powerloom guys, as well, who would have installed a few conventional powerlooms, in the backyard of their house. All the family members will be working on the machines. In fact, till the year 2000, more than 30000 powerlooms were running in and around Vijayamangalam, a small village in Tamilnadu.(This village is the native place of the owner of KPR Mill)

    Most of the Machinery, used in the Textile industry from Spinning to Garmenting have to be imported. We don’t have any state of the art Textile Machinery manufacturer in India, barring a few exceptions like LMW and Rieter India.

    So, anybody willing to go for modification has to import the Machinery, either brand new or secondhand. If you are buying secondhand machinery from another Indian Textile Mill, you can’t avail TUF interest subsidy.

    Further, there is upper ceiling for TUF interest subsidy. Whatever, you are investing well and above the limit, you can’t avail subsidy.

    When you import the machinery, a lot of additional expenses have to be paid for like,

    1) LC charges
    2) Ocean freight
    3)Charges towards the clearing and transportation of machines from the sea port
    3) Import duty
    4) Expenses towards going abroad for inspecting the machines, if it is secondhand machines. Powerloom weavers and small spinners can afford to buy only secondhand machines.
    5) Fluctuation in Rupee exchange rate( 7 years ago, Japanese Yen became stronger by 30% in a few months. One of my friends, who imported Weaving Machines from Japan at this time is still suffering)
    6) Being a low margin industry, capacity utilisation must be very high to make both ends meet. In most parts of the country, we see too much of power shut downs. Generator power being thrice costly, is not a viable option for a small weaver doing jobwork.

    All these expenses, if added up will be more than the paltry interest subsidy. These small guys, going for a Bank loan for the first time in their life are availing Term Loans at higher interest rate than the big established players. Further, these loans are given against good assets, with a distress sale value of more than twice the loan amount. I have not seen a single case, in our region, where Bank has failed to recover the loans from these small players, regardless of whether the business went off well or not.

    Now, at the most, two or three thousand power looms may be running in and around Vijayamangalam. Fortunately, a significant portion of the powerloom owners have modified into shuttleless weaving. What would have happened,if there was no TUF subsidy and if these guys have not modified?

    If Textile industry, big and small don’t do well, “unemployment” will become a serious issue. This TUF subsidy is the barest minimum help, the Government could do.

    Am sure, political parties will not get a single vote extra, by giving TUF Interest subsidy. Still, they give it, in order to avoid the serious negative consequences of not giving it.

    I was also thinking till 2006, that free power and other subsidies to farmers was totally wrong. ( In 2006, I started a small weaving mill in the outskirts of Coimbatore and had to liquidate it in 2008 due to 8 hours power shut down.) During this period, I got to interact with the farmers near my factory. Even if the whole family, works for more than 16 hours a day, they earn only peanuts.I could not see them gaining anything despite of the much hyped subsidies. It is an irony that nobody opens the mouth abt their real problems.

    The generic tendency of condemning all the subsidies, is wrong in most cases.
     
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  14. w4wealth

    w4wealth Well-Known Member

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    total investment in jio may be 1 lac cr. so if it does not turn out to be as rel thinks reliance will b in doldrums.it ca n affect their petroleum and other business also.
    so it is do or die scene for ril .
     
  15. w4wealth

    w4wealth Well-Known Member

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    reliance is a new player . airtel, voda, idea are established players. so competition will be tough for ril. how long ril can offer services for free.1 yr? it is not practical.
     
  16. darth

    darth Active Member

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    Wont blame you for missing the embedded sarcasm in my post.
     
    Last edited: Apr 26, 2016
  17. kharb

    kharb Well-Known Member

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    I am bullish on RIL and expect Rel Jio to double market cap of RIL in less than 5 years.Those who are bearish are welcome to short sell to help in more speedy recovery even earlier from target time .In last year RIL has out performed NIFTY and Sensex ,which shows sharp improvements in RIL as capex are now behind.From next year it will be time to reap benefits of all capital expenditures of past.
     
  18. darth

    darth Active Member

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    Rightly delivered subsidies is whats required. And I think this pro poor ( though ofcourse like the other masses even this class still gets swayed by opposition rhetorics ) government is working earnestly towards this crying need. Understood last night from a friend but over drinks watching the MI match that even TUF has been recently rationalised. Closer home something similar to Tamilnadu must exist in Bhiwandi. I had this belief that the objective of TUF must be to promote SSI's, labour incentive portions of the industry but like always trust the corrupt and/or greedy private sector to abuse/profit from subsidies.
     
  19. kharb

    kharb Well-Known Member

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    TUF is now more attractive, it has now started additional Capital subsidy also upto 30 Crore(earlier was only limited to Intrest subsidy) ,if I recollect correctly.For accuracy please read fine prints of policy.For every body information,all previous and present Govt are right in giving TUF as Textiles is labour intensive and only second to Agriculture in terms of employment. I never said TUF is wrong,I only hinted about benefits to fundamentaly strong compnies and nothing wrong in it.This is in all sectors. What is import or anti dumping duties,help the industry. But strongest company gets the most benefit, nothing wrong in it.
     
    Last edited: Apr 26, 2016
  20. darth

    darth Active Member

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    Good for the pvt sector then. More opportunity to abuse and profit. But BTW I was told that the interest subvention has been done away with. If correct will that be a :( for the pvt sector?
     
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