Stock Review: Prakash Industries Ltd

Prakash Industries Ltd. (PIL) is an integrated steel manufacturer which produces sponge iron, mild steel, wire rods, TMT bars, and ferro alloys. The company also undertakes mining and generates power to meet its own requirements.

 

Sectoral outlook

Steel production in India rose by 4.2 per cent to 60 million metric tonnes (MMT) in FY10. India emerged as the world's fifth-largest steel producer. In the same year its steel consumption rose 8 per cent over the previous year.

The government is supporting the industry through favourable reforms, while the private sector is supporting it with large investments. In a fast developing economy such as India's, the industry has massive growth potential. Industry estimates indicate that the steel industry will continue to grow at a rapid pace since urbanisation and infrastructure development will lead to huge demand for steel.

 

Among the negatives, uncertainty in the availability of key raw materials like iron ore plague the industry. Although India has iron ore reserves of approximately 13 billion tonnes, its high volume of export to China and other countries has aggravated the situation for domestic steel manufacturers. The latter have been experiencing the brunt of short supplies and spiralling ore prices constantly.

 

Company profile

PIL is part of the Surya Roshni group. The company's integrated steel plant is located at Champa in Chhattisgarh. It has set up its own mining and crushing division in Sundargarh, Orissa. The company has been allotted iron ore mines by the state government in Nergaon and Metabodali in Chhattisgarh and Sirkagutu mines in Orissa. In addition, the company is one of the leading exporters of iron-ore fines via Haldia port. It presently generates power using waste hot gases generated from rotary kilns and also by using coal fines and washery rejects.

 

PIL has been allotted two captive coal blocks by the central government - Chotia and Madanpur in Hasdeo-Arand coal fields in Chhattisgarh.

 

Strengths

Good performance. The company has posted a three-year compounded annual growth rate (CAGR) of 17.2 per cent in sales and 26.1 per cent in profit after tax.

 

In Q1FY11 its net revenue increased 27.3 per cent year-on-year (y-o-y) but was flat on a quarter-on-quarter (q-o-q) basis. However, its EBITDA margin dipped slightly by 185 basis points y-o-y to 20 per cent on account of higher iron-ore prices. Net profit rose by 18 per cent y-o-y.

 

Expanding capacity. Currently PIL sources around 30 per cent of its sponge iron requirements from third parties. According to a report by Angel Broking, in its bid to reduce dependence on external parties, the company is expanding its billet capacity from 0.7 million tonnes to 1.0 million tonnes by June 2011 and sponge iron capacity from 0.6 million tonnes to 1.2 million tonnes by FY12. As new iron ore and coal mines are granted to add to supplies from the existing Chotia coal mine, PIL will steadily move towards a fully integrated business model.

 

Opportunities

The company has already initiated its plan to achieve full integration at all levels throughout its chain of steel operations. This plan is expected to be completed in the next two years.

 

Further, the company is making a foray into power production by planning to set up a 625 MW thermal power plant at its existing plant site at Champa for captive use. The first phase is expected to be commissioned in the current year. Thereafter subsequent phases will come up in a phased manner over the next three years.

 

According to an Angel Broking report, PIL has raised US $110 million through foreign currency convertible bonds (FCCBs) over the last six months to fund its capital expenditure (capex) plan. As capacity gets added in a modular fashion, the company's net debt-equity is likely to be stable at 0.1x over FY2010-12 as internal accruals will be sufficient to fund its capex requirements.

 

Concerns

Due to inadequate supply of iron ore, which is the company's key input, iron ore prices have been witnessing a high level of volatility. This is in turn resulting in unstable margins for steel.

 

Another major concern for the company is that allegations have been levelled against it that it has indulged in illegal mining and black-marketing of coal from its Chotia mine. However, the company has declared these allegations to be false. According to a leading newspaper report, the Coal Ministry has stated that it will decide on the issue after the completion of CBI's inquiry.

 

Valuations

PIL is currently trading at a price-to-earnings ratio (P/E) of 8.8 (September 20, 2010) which is slightly higher than its five-year median P/E of 7.2.

It posted a three-year CAGR growth of 30.9 per cent in earnings per share (EPS). Its price-earnings to growth (PEG) ratio is 0.29, which is attractive.

While valuation-wise the stock is attractive, its price could remain volatile in the short to medium-term till the controversy around the stock gets sorted. To be on the safer side, we recommend that you invest in the stock after the cloud that is hanging over it dissipates.

 

Stock Review: Hindustan Construction Company(HCC)

Hindustan Construction Company's (HCC's) revenues (excluding from joint ventures) grew a moderate 13.3 per cent to `885 crore in the September quarter due to long gestation hydro power and transport projects. Good monsoon and higher share of slow-moving government projects (73 per cent of backlog) also hit the performance.

The operating profit margin rose 161 basis points to 12.9 per cent due to cost control and high-margin hydro projects. However, interest costs as a percentage to sales surged 117 basis points to 7.6 per cent – the highest in the construction sector and in the last 10 quarters – due to introduction of base rates, rising interest rates and a `3,300 crore increase in the net working capital. Stable depreciation and taxation costs, coupled with doubling of other income to `6.1 crore, helped net profit margin rise 67 basis points to 1.4 per cent.

Going ahead, revenue growth is expected to be robust on the back of a pick-up in execution of new large projects, including road build-operate-transfer (BOT) ones. Projects under various subsidiaries, such as HCC Infrastructure and HCC Real Estate (construction work on 247 Park Phase-II to start by March 2011, approvals for slum rehabilitation and 2,000-crore primary offering by Lavasa) are also progressing well.

However, the impact of high interest costs on profitability is the biggest risk, given a leveraged balance sheet (net debt-to-equity of 1.9 times), due to its presence in capital-guzzling segments like BOT, real estate and hydro power. The falling share of hydro power and water solutions in the total order book over the past several quarters, compensated partly by the transportation sector, is also aworry. Further, concerns about the company's exposure to Andhra Pradesh (19 per cent of the total order book) persist, though the share is declining (25 per cent in 2009-10). At `66.05, the stock looks expensive at 25 times 2011-12 estimated earnings.

Though the outlook is bright, high interest costs may prove to be an overhang on the stock

Stock Review: TATA MOTORS

THE stock of Tata Motors hit its all-time high of 1,350 during the intra-day trading on Wednesday, in response to the company's robust second-quarter performance. This, once again, highlights the strong performance of the company's overseas operations, including those of Jaguar and Land Rover (JLR).

   A major highlight of its performance was the fact that with business growth, profitability also improved. The company's consolidated operating margin rose by 770 basis points (bps) to 9.5% (excluding amount capitalised and other non-core items) compared with a year earlier. Net sales grew by 36.5% to 28,782 crore in the quarter under review. JLR accounts for nearly 56.2% of its consolidated quarterly turnover.

   The growth momentum for JLR operations came not only from a 21% rise in volumes for its models during the quarter, but also from the improved realisation per vehicle and a better product mix. In addition, a weaker pound against the dollar helped realisations and operating margins. This enabled the company to deal effectively with the gruelling problem of rising metal and allied costs. With this, Tata Motor's consolidated net profit has reached a normalised proportion to sales. It surged nearly 100 times to 2,223 crore in the quarter, given a lowbase effect of the previous year.

   However, the picture is not that promising on the home front. Tata Motors' India business is facing cost pressure amidst the rising interest rate regime. The company had hiked prices during the first half of the financial year, but that could not protect its domestic margins, which shrank by 310 bps to 7.7%. The company hiked prices again in October. In addition, the domestic auto finance rates are firming up and that may impact sales volume growth over the next few quarters. Currency fluctuations would also play an important role given the increasing proportion of the company's overseas activities. This, in turn, could cause fluctuations in its consolidated margins. On a positive note, demand conditions in the key markets of JLR, like Russia, China and North America, are expected to continue in the short term, given the pick-up in economic activities in these countries.

   The stock of Tata Motors trades at a P/E of nearly 10.7 times its trailing 12-month consolidated earnings. This seems to fully reflect the market's expectations about the company's future growth.

IPO Review: Manganese Ore India Limited (MOIL)

With good cash reserves and zero debt on its books, MOIL's stock looks to be a good long term bet. Investors can subscribe to the issue

 

IPO details:
Company Name: MOIL Issue Size: 1,142-1,260 crore
Price Band: 340-375
Issue Date: Nov 26 to Dec 1, 2010


STATE-OWNED MOIL is hitting the capital market with an initial public offering of 3.36 crore equity shares in the price band of 340-375 (with 5% discount for retail investors and employees). The sale of shares is aimed at divesting 10% of the central government's stake and 5% each of Maharastra and Madhya Pradesh governments. The company will not receive any proceeds from the issue.

 
   At the upper end of the offer price, the price-to-earnings ratio of the company works out to be 9.5 based on FY11 annualised EPS. There is no direct competitor for MOIL in the domestic the local market; the broad peer group could include NMDC, Sandur Manganese and Sesa Goa. These companies trade at a premium to MOIL, despite the fact that the latter has the highest operating margin among them. In terms of its global peers BHP Billiton and Eramet, which have operating margins far lower than MOIL, are trading at a price multiple of 12-17. The company is one of the low-cost producers of manganese ore with an average cost of production around $71/tonne compared with around $260/tonne for BHP Billiton. MOIL should get premium over most of these domestic and global players because of its scale of production, lowcost high margin structure and no debt on its books.

BUSINESS AND FINANCIALS


Incorporated in 1896, MOIL is the largest manganese ore producer in India and the fifth-largest in the world. The company's product portfolio consists of manganese ore (1.1. mtpa capacity), high carbon ferro manganese, electro manganese di-oxide and wind power. MOIL currently operates seven underground mines and three open cast mines across Maharastra and Madhya Pradesh, having access to 21.7 million tonnes of proved and probable reserve as on October 1, 2010. In total, it has around 70 million tonne of measured, indicated and inferred reserves of manganese ore. At Balaghat and Dongri Buzrg mines, MOIL has the beneficiation plant to upgrade the quality of the manganese produced. The top 10 customers of the company accounted for about 51% of the sales with SAIL accounting for 22% of the total manganese ore sales.

   MOIL, for the past four years, witnessed revenue and PAT CAGR growth of 31% and 42%, respectively. It has posted a 70% EBITDA margin during the first half of FY11 after witnessing a dip in FY10 due to sudden drop in prices. The company has been profit making and dividend paying for the past 17 years. It has no debt on its book and has cash balance of 1,760 crore that translates in to 105 per share. This high level of cash reserve can help the company acquire mining assets in India and abroad.

FUTURE OUTLOOK

MOIL has 55% of its current manganese ore with manganese content more than 40% or higher. Further the company does not have any reserve below 30% of manganese content. It will continue to charge premium for its ore compared to its peers as higher percentage of manganese per tonne boost the prices. The company produced 1.1 million tonne of manganese in FY10 and plans to increase its production to 1.5 million tonne by FY16 with the total capex of 768 crore. It translates into a CAGR production growth of 5.5% during the period.

   For expanding its mining capacity, MOIL has planned a capex of 84 crore for FY11 and Rs108 crore for FY12 for developing its existing mines. The company is also increasing its value-added production capacity and has entered into a joint venture with SAIL and RINL for ferro plants in Chhattisgarh and Andhra Pradesh. This increased value-added production will help the company diverse its product portfolio.

   MOIL, unlike other mining PSUs, prices its ore in accordance with international prices and domestic demand. These prices are revised every three months. This autonomy gives the company a good opportunity to leverage increasing manganese demand in the country. According to CARE Research, the demand for manganese is expected to rise at a CAGR of 9% to 4.1 million tonne by FY12. This should benefit MOIL, given its dominant market share in the domestic market.

RECOMMENDATION

The stock is a good long-term bet with low risk to its profitability and steady cash flows. Apart from that, the company has a business with low commercial risk and is poised to deliver growth in tandem with growing demand from the steel sector. MOIL may also turn out to be a high dividend paying stock as it has good cash reserves and zero debt on its books. At the given valuations, it seems that the government has left a lot on the table for investors.

 

Stock Review: Glenmark Pharma

Glenmark Pharma's Crofelemer, a first-inclass anti-diarrhoeal drug, has successfully completed Phase-III trials for HIVrelated diarrhoea. With this, Glenmark is close to becoming the first Indian company to develop an original novel chemical entity (NCE) to treat diseases.

Glenmark says Crofelemer, likely to be launched in about 140 countries in two years, will open at least a $80million opportunity. Glenmark has already seen strong domestic growth on the back of 24 product launches in two years which contribute 25 per cent to revenues.

The branded formulations segment grew 19.2 per cent at `397 crore in the September quarter, while domestic formulations grew 21.5 per cent to `224 crore.

The growth was spread evenly, with contributions from both small and large brands.

The robust growth (19 per cent) in domestic formulations in the first half of the financial year looks sustainable as secondary sales have grown 30 per cent, according to the ORG (a pharmaceutical research firm) data.

Generic sales grew 26.2 per cent to `250.4 crore, boosted by the US business. Glenmark's second launch on exclusivity pertaining to Tarka generics (anti-hypertension tablet) contributed around `20 crore, likely to continue till 2013-14, as filings by competitors are yet to be seen. An out-of-court settlement for generics of Zetia (expected to contribute from 2011-12) has also been made with the innovator and Glenmark plans three-four launches upon exclusivity.

With promising prospects, are-rating is on the cards, say analysts at Elara Capital. For the current financial year, revenues are estimated to grow 22.3 per cent to 2,949 crore, with net profit up 31.4 per cent at `426 crore. At `365, the stock trades at 23.4x2010-11 estimated earnings.

The stock is likely to be re-rated on strong prospects and the successful trial of Crofelemer

Stock Review: BHARTI AIRTEL

BHARTI Airtel's September 2010 quarter numbers raise doubts over its ability to add new subscribers to the mobile network. The country's largest telecom operator continued to report decent user additions during the quarter but failed to show any meaningful addition to the minutes of usage on its mobile network.

   Telecom penetration in India has increased at a phenomenal pace over the past few quarters. Just from 49% a year ago, it now stands at close to 66%, largely fuelled by the entry of new players and the conscious attempt by existing operators to cover remote areas. But minutes of usage have either remained stagnant or fallen in some cases. This may cause some concern since minutes of use reflect how efficiently the network is utilised.

   For Bharti, minutes of usage remained more or less stagnant at 190.8 billion minutes during the September quarter from the previous quarter though it added 6.7 million new subscribers. According to Bharti's management, the second quarter is traditionally a weak quarter given the torrential rains and other seasonal factors. But historical data shows that the company's sequential rate of growth in network minutes during the September 2010 quarter was the lowest compared with figures in the corresponding period of the previous two years.

   This means that additional users may no more bring additional minutes to the network. It needs to be seen whether the trend continues in the coming quarters.

   Bharti's secondquarter numbers are not strictly comparable with its performance in the previous quarter since it has consolidated the full quarter results of its African venture. While this has boosted its topline significantly, its margin profile has eroded given the lower profitability of the African business. At 23.9%, the African business's operating margin before depreciation is way below the 35.2% margin of its mobile business in India and South Asia.

   Bharti has two operational levers to improve the profitability of its African operations. First is network utilisation. Currently, the number of customers per cell site is lower. Bharti has taken initiatives to improve the situation. The second is to improve operational efficiency by employing its famous outsourcing model. The company has entered into partnership with IT players, including IBM, Pinnacle and Tech Mahindra, to initiate outsourcing. This may help in offsetting the impact of high labour costs going ahead.

   So far, Bharti's stock has not participated in the broader stock market rally. It gained a meagre 2% in the past three months compared with the 14% gains in the benchmark Sensex. The benefits from the 3G launch expected in the next two quarters and a gradual turnaround in its African business are long term in nature. In the near term, however, the stock's movement may be restricted given the lack of any fresh triggers.

Stock Review: Infinite Computer Solutions (ICS)

Posts Good Sales, Net Profit Growth, But Client Base A Worry

 

THE stock of Infinite Computer Solutions (ICS) has been hovering around its offer price of . 165 over the last five months after its list-ing in February 2010.

   The stock, however, witnessed a renewed investor interest on Wednesday post its robust September quarter performance. The scrip gained nearly 9% during the single session following the company's upbeat revenue and profit guidance for FY 11.

   The New Delhi headquartered Infinite Computer Solutions (ICS) pro-vides IT services and intellectual property (IP)-related solutions to telecom, manufacturing, and healthcare domains.

   ICS delivered double-digit sequential growth in sales and net profit during the September quarter buoyed by the increase in its IP-related revenue, which is nonlinear in the sense that it does not require a proportionate increase in the headcount. The company was also able to retain its margin at 16.6% after witnessing a sequential drop of 50 basis points (bps) in the previous quarter.

   Going ahead, the company has retained its earlier guidance of 877 crore on the higher side of the forecast band, which would be 32% more than the FY10 revenue. Net profit is expected to grow by 31% to . 104 crore. A shade lower growth in profit compared with the sales growth reflects pressure on margin due to currency fluctuations. It had reported a forex loss in the September quarter.

   On a positive note, the company's focus on a single client is gradually declining. In the September quarter, its single-largest client contributed 33% of total revenue, down from 42% two quarters ago. The share of its other top-10 clients has increased over the quarters indicating a larger penetration of ICS in these accounts.

   On the flip side, however, the number of active clients has shrunk substantially from 70 in FY09 to 47. This is despite the fact that the company has added new clients in each of the last three quarters. This can cause some concern given the smaller nature of its operations.

   At current CMP, ICS's stock traded at FY11 estimated P/E of close to eight. The company has been able to report ro-bust year-on-year growth in the past. This, however, would become challenging given the increasing base of the company. It needs to be seen whether the company can retain its growth streak on a higher revenue and profit base in the coming quarters as well.

 

Stock Review: BHARAT FORGE

IMPROVED exports and sustained demand from the domestic market boosted the net proft of metal forgings company, Bharat Forge (BFL), during the September 2010 quarter. The company, however, reported a sequential drop in its performance, which can be a concern going ahead. During the September quarter, BFL nearly doubled its standalone net profit to . 68 crore on a 68% increase in revenue over the year-ago period. On a consolidated basis, the firm posted a 56% growth in sales to . 1,111 crore with the bottomline swinging to a net profit of . 60 crore compared with a loss of . 40 crore in the year-ago period.

The growth in topline was aided by demand from automobile companies besides traction in the non-auto forgings segment. Automotive demand, that drives its topline and bottomline performance at present, is enjoying continuous growth in the domestic market besides a strong rebound in sales of commercial vehicles in the US that accounts for half of its total exports, or about 18% of total revenues. However, the European operations are still facing poor demand, and this has been a drag for the company.

The turnaround in the consolidated earnings is due to improvement in margins that kicked off after the restructuring of its wholly owned subsidiaries in Europe last year. The firm has seen overseas sales improve for the last three quarters and this is likely to support sales and earnings growth in the coming quarters. However, on a sequential basis, the company's consolidated sales and profit growth has decelerated due to annual holidays and annual maintenance expenses in Europe.

The company has been primarily an auto component play for investors. But it has been trying to diversify by supplying components for power and oil & gas sectors and the contribution of non-auto business now constitutes almost a third of its total sales.

Going forward, the company is expected to see topline growth from auto component business as demand for commercial vehicles is ex-pected to continue albeit at a slower pace. At the same time, increased thrust by the government on the infrastructure sector will enable BFL to boost business from the non-automotive segment. The company's earnings growth will, however, continue to bank on how its European operations cut costs in the face of poor demand and whether the US revenue continues to grow from hereon. 

Stock Review: Nava Bharat Ventures

Nava Bharat Ventures was started in 1972 under the name of Nava Bharat Ferro Alloys (NBFA). In 1975, it started manufacturing ferro silicon at Paloncha in Andhra Pradesh. In 1980, the company ventured into the production of sugar and related by-products. In 1997, it entered into power generation with the objective of becoming self-sufficient in this regard. Given the mismatch between the demand and supply of power, its decision to produce power for captive use soon changed into a decision to supply power to the grid. In 2005, the company forayed into the development of real estate and Special Economic Zones (SEZs). In July 2006, NBFA changed its name to Nava Bharat Ventures (NBV). Next, it set up a wholly-owned subsidiary in Singapore known as Nava Bharat (Singapore) Pte. Limited for its foray into international trade.

 

Business

Power. NBV currently has an installed capacity of 237 MW: 143 MW of this is located in Andhra Pradesh and 94 MW is in Orissa. In March 2010 the company announced that it would set up two plants of 150 MW each in Andhra Pradesh. Its Zambian power project of 300 MW is expected to achieve financial closure by the end of FY11.

 

NBV informed the Bombay Stock Exchange (BSE) on July 14, 2010 that the company had sold 52 per cent of its shareholding to Essar Energy in the upcoming 1,050 MW power project in Orissa. This project was jointly owned by Nava Bharat and Malaxmi Group. It has also agreed to sell its balance stake at a later date.

 

Ferro alloys. NBV is the second-largest producer of ferro alloys in India with a total installed capacity of 2,00,000 tonnes per annum (TPA). Currently it is focusing on the production of silico manganese. Ferro chrome and ferro manganese production account for a small share of total production.

Ferro alloy is a power-intensive industry. South Africa is its main producer and exporter. Earlier, it had a competitive advantage due to the availability of low-cost power and cheap ore. The other main producers are Kazakhstan, China, Brazil, Russia and India. Recent tariff hikes and irregular supply of power to ferro alloy producers in South Africa augur well for Indian producers.

 

Industry outlook. After October 2008 economies around the world witnessed a severe recession. Most steel producers had to significantly cut production due to lack of demand. Ferro alloy prices declined by more than half from their peak levels. With the global economy recovering, ferro alloy prices have begun to recover but they are still well below pre-crisis levels. The current installed domestic capacity of 3.25 million tonnes per annum (MTPA) is more than sufficient to meet domestic demand. Most ferro alloy plants are still running well below their full capacity.

 

Sugar. Sugar and its by-products accounted for only 8 per cent of the company's revenue in FY10. NBV has an integrated business model that makes its sugar venture non-cyclical, thereby resulting in a more stable bottomline. As part of this model, the company also produces value-added by-products such as ethanol. It also uses its own captive power.

Recently the government has hinted at a possible decontrol of the sugar sector. If implemented, this segment of NBV's business is likely to become more profitable.

 

Real estate. NBV has a small presence in real estate through its subsidiary Brahmani Infratech. This subsidiary has only one project. It has entered into a joint development agreement with Mantri Technology IT Parks Private Ltd for the development of an IT-ITES oriented SEZ in Hyderabad, which will also have commercial and residential spaces within. This project has 250 acres of land.

 

International operations. Nava Bharat (Singapore) Pte Limited looks after NBV's international operations, which include its international ferro alloys business, and its Zambian and Indonesian operations. It has off-take rights and majority interest in a coal mine in South Kalimantan, Indonesia. This venture will support its new merchant power business in India. The extraction and trading of coal is awaiting forest clearance by the Indonesian government. Its Zambian venture has coal reserves of 65 million tonnes of high-grade coal and another 65 million tonnes of power-grade coal.

 

Strengths
Business model. NBV's dynamic business model is its strengths. While in the beginning the company was into the production of ferro alloys, it then also ventured into power production in order to benefit from the opportunities available in that area.

Focus on backward integration. The company's focus on backward integration in all segments is a strategy worth noting. After setting up its ferro alloy plants, the company focused on setting up captive power plants to provide electricity to the former. Similarly, now NBV is trying to secure coal supplies for its power plants. And as stated earlier, even the sugar plant is fully integrated.

 

Stable earnings. The dynamic business model discussed earlier enables NBV to earn stable profits.

 

Weaknesses
Coal supply. Its power plants are coal based. This creates a concern since it is dependent on external sources for coal supply.

Ferro alloys. The cyclical nature of the ferro alloy business, whose fortunes are tied to those of the steel industry, is another cause for concern.

Power rates. NBV has not entered into long-term power purchase agreements (LPPA) with the power grid. This makes it vulnerable to fluctuations in the price of power.

Declining realisations. Merchant power rates continue to decline due to improvement in supply of power. Deterioration in the financial positions of state utilities has also affected payments.

Policy risk. The company's operations in countries like Zambia and Indonesia are vulnerable to policy risk, in case the political scenario deteriorates rapidly.

 

Financials

In the past five years, NBV has reported a return on capital employed (RoCE) of over 15 per cent every year except in FY06. In fact, in FY08 and FY09 the company had reported a ROCE of over 30 per cent, while in FY10 it had a RoCE of 25 per cent.

The company has improved its return on assets (RoA) to an impressive level. In the past three years, its RoA has never fallen below 20 per cent.

NBV has enjoyed a high operating profit margin (OPM) of above 40 per cent between FY08 and FY10. The company's net profit margin (NPM) has remained above 30 per cent in the last three years.

 

Valuations

The company's current PE is 7.5 times (September 22, 2010). This is marginally higher than its five-year median PE of 7.33 times. Moreover, its earnings per share (EPS) has grown over the last three years at a compounded annual growth rate of 33.31 per cent. Hence its PEG stands at an attractive 0.23. You may buy this stock with at least a three-year horizon.

 

Stock Review: GAIL

THE September 2010 quarter results of natural gas major Gail India were in line with the street estimates as it benefited from marketing margin on APM gas and yo-y reduction in the subsidy burden. However, there was a noticeable fall in volumes as a couple of its plants underwent maintenance shutdowns and a shutdown at Panna Mukta Tapti fields reduced availability of gas. Gail's subsidy burden for the quarter came down 24% y-o-y to . 346 crore, which boosted performance of its LPG business. The PBIT from the LPG and liquid hydrocarbons business stood at . 175 crore, as against a loss of . 73 crore in the year-ago period. However, production was 10.6% lower at 337,000 tonnes as its Vijaypur plant was shut down for maintenance.

The company's natural gas sales volumes were 2.5% lower at 79.04 million metric standard cubic meter per day (mmscmd) during the September 2010 quarter as supply from the Panna Mukta and Tapti fields was down for most of the quarter due to technical problems. For the quarter, the company reported a 30% growth in net sales to . 8,128 crore. Although its operating margin improved y-o-y by 130 bps to 17.9%, it was the weakest in the last four quarters. Between the December 2009 and June 2010 quarters, the company had maintained its operating profit margin above 20%. The company's y-o-y growth rate at the PBDIT level was 35%, which increased to 40% at the pre-tax level thanks to a fall in the interest cost and slower growth in depreciation. However, the company's deferred tax provisions soared disproportionately, bringing down the growth at the net profit level to 29%. The jump in deferred tax provision was mainly on account of the tax exemption enjoyed on the cross-country new pipelines, which became available to the company during the quarter for the first time. A high level of deferred tax is likely to become a characteristic for the company as more and more pipelines commence operations.

In the petrochemicals business, the company had to shut down its Pata plant for scheduled maintenance as well as debottlenecking. This brought down volumes by 9% to 93,000 tonnes and was partially responsible for the pressure on the margin, bringing down profits when compared with the year-ago period.

The company has embarked upon an ambitious expansion project, which will triple its gross block in the next four years. Being the largest player in its field, it is also a natural beneficiary of the increasing gas volumes in the country. With the government planning to introduce some formula to apportion oil industry's under-recoveries, Gail stands to benefit from a better visibility on its earnings.

Stock Review: JP Associates

Jaiprakash Associates reported a satisfactory performance in the September quarter. Its sales jumped more than expected at 63 per cent year-on-year (y-o-y) at 3,071 crore, helped by an increase in construction (73 per cent) and cement revenues (43 per cent) at `1,571 crore and 1,208 crore, respectively. The cement business remained buoyant with a 59 per cent y-o-y jump in volumes (3.4 million tonnes) thanks to capacity expansions and strong despatch growth. The construction business also showed better execution, despite a good monsoon, due to progress on power projects, including Karcham Wangtoo, Yamuna Expressway and real estate.

Operating profit growth came significantly lower at 46 per cent to `759 crore on higher raw material (coal, fly ash) and construction costs.

Also, a 10 per cent y-o-y decline in cement realisation led to a 1,000 basis points (bps) drop in profit before interest and the tax (PBIT) margin of cement business (38 per cent of revenues).

The adjusted net profit marginally declined 0.5 per cent to `115.5 crore due to asubstantial increase in interest and depreciation, mainly led by cement expansion followed by high taxation. The company plans to expand its cement capacity from 22.5 million tonnes to 35 million tonnes by FY12. However, analysts say the realisation would continue to be under pressure even as the volume growth is expected to be strong.

Construction revenues could see some slowdown after the Karcham Wangtoo and Yamuna Expressway projects get commissioned by the end of FY12. Fresh orders will act as a significant trigger for business growth, analysts say. Real estate, which has a relatively lower base (10 per cent of revenues) is doing well. In the first half of FY11, while sales quadrupled to `689 crore, the PBIT margin improved 173 bps to 42 per cent.

The stock ended 3.26 per cent higher at `128.25 over its previous close and trades at 21 times the FY12 estimated earnings. Analysts have an accumulate rating on the stock.

The company needs fresh triggers in its construction business to drive the stock price

Stock Review: Mahindra & Mahindra

Mahindra and Mahindra (M&M) saw its net sales surge 19 per cent year-on-year (y-o-y) to just over `5,300 crore in the September quarter, boosted by a 20 per cent y-o-y increase in sale of vehicles to just over 1.31 lakh units.

The strong momentum in its core segments, utility vehicles (17 per cent y-o-y) and tractors (13 per cent y-o-y), was a positive signal, given the company's dominant market position in both these segments. Given that these segments are also closely levered to the monsoon-led demand resurgence, the outlook looks bright. While supply side shortages in tyres, fuel injection systems and castings constrained production by about 5,000 units in the quarter, it is expected to improve over the rest of the year.

A sequential dip in raw material costs boosted margins sequentially by 170 bps to 16.8 per cent, a 180 bps compression on a y-o-y basis given the higher raw material and employee costs. The `48.5 crore octroi refund, while comparable on ay-o-y basis, boosted numbers sequentially and altogether the net profit grew 8per cent y-o-y and a more substantial 35 per cent qo-q to `758.5 crore.

The company is looking to launch three variants of the Xylo and Maxximo in the coming quarters and is targeting a new SUV launch in FY12. A new 40-tonne vehicle and tipper launch is expected by the end of FY11. The total capital expenditure planned over the next couple of years is `4,500 crore with an additional investment of

`2,500 crore . Another positive is that the company has converted almost all of its outstanding FCCBs into shares or GDRs, thereby bringing its debt to equity ratio down to 0.2, strengthening its position ahead of its SSangyong acquisition. At Thursday's closing price of `777.7, the stock trades at a P/E valuation of 15x consensus estimates of the FY12 EPS.

Robust growth in revenue powered by sustained momentum in sales volume for utility vehicles and tractor segments

Stock Review: PUNJ LLOYD

Engineering major Punj Lloyd posted a mixed set of numbers for the September quarter. While top line and bottom line ny's operating margins were better than what analysts had estimated. Notably, things seem to be getting smoother for Punj Lloyd, given that its performance was better than the June quarter. Overall, while there has been some improvement, concerns over execution still exist while the flow of new orders has been muted.

Improving, but not comforting

On a year-on-year basis, Punj Lloyd's revenue and net profit was down 31 per cent and 55 per cent, respectively, for the September quarter. However, operating profit margins (OPM) expanded 185 basis points (bps) to 9.2 per cent and came as a surprise helped by lower input costs —raw material cost as a percentage to sales dropped 1,000 bps to 56 per cent.

On a sequential basis though, the company's performance is indicating revival. Its consolidated sales rose 15 per cent quarter-on-quarter (over the June quarter) while the operating profit margins expanded 150 bps in the September quarter. Analysts say orders from Libya, which form a large chunk of the total order book and had disappointed in the last few quarters, have seen some improvement in execution. Likewise, the absence of any one-time write-offs has also helped margins. That apart, lower rise in interest and depreciation charges helped the company post anet profit of `23.9 crore versus a `30.6 crore loss in the June quarter.

Outlook

The company expects $2-2.5 billion (approximately `11,000 crore) worth of order inflows in the second half of 2010-11, partly led by infrastructure projects (currently 71 per cent of the order book as against 57 per cent in H1 2009-10) followed by oil & gas, thanks to better growth in the South and South East Asian region compared to the Middle East and Africa. However, analysts advise caution as it is in sharp contrast to the past several quarters, which have shown a poor order inflow trend.

The slow movement of Libyan orders, worth 9,400 crore or 38 per cent of the total order backlog of `25,470 crore, is also showing little progress.

Of this, about `5,900 crore of orders (23 per cent of the total order book and 63 per cent of the total Libya-based orders) are stuck for six-nine months due to redesigning issues at the client's end. The company's pending litigation, including with clients like Ensus and ONGC which involves an amount of £15-17 million, could hit its profitability if the decisions go against the company. Overall, given the cautious mediumterm outlook, the company's stock at `126, which translates into a PE of 12.6 times its 2011-12 estimated earnings, looks fairly valued .

Stock Review: State Bank of India

State Bank of India reported a 22.5 per cent drop in consolidated net profit for the September quarter to `2,363.95 crore on the back of loan-loss provisioning of `2,162 crore. Robust net interest margin and strong traction in the core fee income were key positives, but deterioration in asset quality took atoll on the financials.

However, results are not comparable with the yearago period due to the merger of State Bank of Indore.

Net interest income rose 45 per cent year-on-year (yo-y) to `8,115 crore due to a four per cent decline in interest expenses. The current and savings account ratio jumped 700 basis points despite subdued deposit growth of 11 per cent and increase in deposit rates. In addition to lower interest costs, a 50-basis-point rise in the prime lending rate in August buoyed the net interest margin by 90 basis points year-on-year to 3.4 per cent – the highest in five years.

Despite higher top-line growth, operating profit grew just 31.5 per cent to `6,357 crore, as other income (including treasury gains and forex gains) rose 13.6 per cent to `4,005 crore. Net profit was less due to provisioning for loans, which almost doubled due to higher gross non-performing loans and raising of the loan-loss provisioning ratio to meet the Reserve Bank of India's 70 per cent norm by September 2011.

While analysts are bullish on SBI's core business due to a busy business season ahead in the second half of the current financial year, they expect higher loan-loss provisioning to continue in 2010-11, leading to subdued profitability.

The stock ended 4.4 per cent lower at `3,271.9 on Tuesday, reflecting investor concerns about asset quality. But, even at these levels and 2.3 times 2011-12 estimated book value, it is not cheap and has limited upside potential, reckon analysts.

While core business is on a strong wicket, slippage in asset quality and high valuation will cap the upside

Stock Review: Thermax

Thermax recorded three year-high growth of 60 per cent in revenues to 1,092 crore in the July-September quarter. This was partly due to low base in the same quarter last year (a decline of 15 per cent in revenues) and strong execution of large orders in the energy segment, which saw a jump of 72 per cent in sales ( `891 crore or 78 per cent of the total sales).

Revenues from the environment segment rose 50 per cent to `248 crore. Both segments saw record sales growth. Operating profit margin and net profit margin were 12 per cent and eight per cent, respectively, despite arise in raw material costs and taxation.

However, the energy segment saw a decline in profit before interest and tax (PBIT) margin of 100 basis points (bps) to 10.2 per cent — the lowest in the last three years —while the environment segment saw the PBIT margin stay stable at 12.5 per cent.

Thermax reported strong growth of 43 per cent in its order book at `7,260 crore om the back of `3,200-crore order inflows in H1FY11 (`1,400 in Q2FY11). The outlook is strong as the company is getting enquiries from various industries. The key feature in the second quarter was a pickup in short-cycle product orders from power cogen, cement and steel companies, which could influence nearterm earnings, said an Emkay Securities report.

The company's plan to enter boiler manufacturing in ajoint venture with Babcock and Wilcox, to be operational by the end of financial year 2011-12, will place it in a different trajectory and improve scalability and scope of business. Given these positive developments in the pipeline, the valuation of 22 times FY12 estimated earnings look reasonable.

The performance in the September 2010 quarter reflected the robust economic activity in India

Stock Review: Jet Airways

Jet Airways quadrupled its net profit sequentially to `12.4 crore in the September quarter. The quarter, which is seasonally more subdued, saw revenues rise 40 per cent year-on-year (yo-y) to over `2,800 crore, even as the passenger load factor contracted 230 basis points (bps) quarter-on-quarter (qo-q) to 77.4 per cent. A 13 per cent y-o-y increase in departures, and a nine per cent rise in gross revenue per passenger to `7,214, were the balancing factors.

Although Jet Airways, along with Jetlite, expanded market share in the domestic space by 140 bps y-o-y to 27 per cent, revenues dipped 4.6 per cent sequentially to `1,238 crore due to it being a lean season. However, the load factor, despite being compressed 800 bps sequentially, surged 160 bps yo-y to 71.4 per cent. The average gross per passenger revenue increased 10 per cent y-o-y to `4,495. Domestic operations Ebitda (earnings before interest, taxes, depreciation and amortisation) margins declined sequentially by 170 bps to 16.2 per cent.

Jet said it converted `1,200 crore rupee loans into dollar loans, reducing interest costs 66.4 crore a year. The interest and finance charges for the first half of financial year 2010-11 were `993 crore, more than double that in the same period last year.

The airline plans to start services in 10 new domestic sectors and introduce 46 new flights this month, besides low-cost services in eight additional sectors with 30 new flights. According to the management, given the coming holiday season, demand in the domestic sector and yields are expected to pick up. International yields and loads are also expected to stay strong.

The positive operational trends and outlook augur well for the stock, which has seen afew upgrades in earning estimates. At Monday's closing price of `802, the stock trades at a price-earnings valuation of 13 x FY11 earnings per share estimate.

A revival in the aviation market and revenues from international operations help the airline report a strong performance

Stock Review: Hero Honda

Hero Honda recorded highest-ever sales in the September quarter at 505,553 units, up 43 per cent year-on-year (y-o-y). But the growth was lower than peers. The company continued to lose market share, which fell 150 basis points to around 48 per cent, according to Standard Chartered research.

With a price rise early in the quarter, the company saw realisations rise nearly three per cent. This boosted revenues by 12 per cent to over `4,500 crore, in line with estimates. Raw material costs increased 20 per cent and dragged earnings before interest, tax, depreciation and amortisation (Ebitda) margins by 500 basis points to 13.4 per cent.

Unlike competitors, Hero Honda hasn't announced any further price rise to lower the impact of rising raw material costs after its solitary action early last quarter. This blurs the outlook and has led to several downgrades of 2010-11earnings estimates.

However, analysts said these pressures could be the result of the impending purchase of Honda's stake by the Hero group promoters.

The stock, while underperforming the Sensex, has held up well and has risen 1.7 per cent during the last one month. Without the Honda badge, the brand may suffer domestically. But, opening up of the export market will help the company follow Bajaj Auto's phenomenal trail in other emerging markets (including Africa and Latin America).

At `1,826.05, the stock trades at a price to earnings (PE) valuation of about 15x 2011-12 earnings per share estimates.

Rising raw material costs have hurt margins, but the company has not announced a price rise yet to mitigate the impact

Stock Review: Ahluwalia Contracts

Investors expecting realistic returns can take exposure in Ahluwalia Contracts (India)'s stock with an investment horizon of at least two years

 

MID-TIER construction company Ahluwalia Contracts (India) (ACIL), has a reasonable project execution history and sound order book. Although the firm has a plain vanilla business model, it has, over a period of time, demonstrated its ability to execute projects in time. Given its future order pipeline, investors looking for realistic returns can take exposure in this stock with an investment horizon at least two years.

BUSINESS:

Ahluwalia Contracts (India) focuses on building residential and commercial real estate properties on a subcontract basis. With a pan-India presence, ACIL has grown at a steady pace over the last few years. The firm has a client list comprising groups such as ITC, Mahindra and HCL, and repeat orders account for 60% of its order book.ACIL closed FY10 with 1,560 crore in revenue.

   The company had an order book of 5,000 crore as of June 31, 2010, just over three times its revenue for 12 months to June 2010. As the firm has diversified its presence in the infrastructure area, there is almost an equal business split between private and government sector contracts in its order book.

   One-third of its order book is from real estate residential projects with the balance split between industrial and commercial projects. The firm has recently ventured into new segments including construction of power generation plants besides roads and other civil infrastructure work under the build operate transfer (BOT) mode.

GROWTH:

With increasing thrust of the government on improving infrastructure in the country backed by higher spends, ACIL can tap into the growth prospects given its history of timely execution of orders. The company's future strategy is to focus on its core business of construction of residential and commercial properties even as it diversifies further into the infrastructure sector. It recently bagged an order of 72 crore for the development of a bus terminal in Kota, Rajasthan. It also won a few civil construction projects in the power generation sector and expects it to contribute around a quarter of total orders in the next couple of years.

FINANCIALS:

The company's standalone net revenue clocked a compounded annual growth rate of 40%, while net profit grew a tad faster at 43%, over the last four years. While revenue growth was due to timely execution of projects, earnings growth was due to better operational efficiency and lower nonoperational expenses.

   ACIL has maintained positive operating cash flows over the last five years owing to a lean net working capital cycle compared with its peer group. Lower capital gearing is one advantage for ACIL over its peers. ACIL has a debt-equity ratio of 0.86, much lower than the industry average of 1.20 for the year ended March 2010. This has allowed the firm not to go for equity dilution like many other companies over the last one year, and has resulted in higher return on equity of 21% as compared with an industry average of 17%.

VALUATIONS:

The stock has been beaten down 20% since mid-October and at the current market price of 175, the scrip is trading 15 times its standalone profit for the 12 months to end-June 2010. This looks modest compared with the industry average of price-earning multiple of 24.Assuming a 20% to 25% annual growth in revenues for the current fiscal and for the following year, we expect the company to close with a net profit of 140 crore in FY12. This means ACIL is trading around eight times the estimated two-year forward earnings, which provides reasonable upside potential for the stock.

CONCERNS:

The company has been in the thick of things over the past two weeks over alleged irregularities on payments related to the scam-tainted CWG that has also taken a toll on its stock price. The firm also faces a potential delay in payments from realty firm Emaar-MGF for a subcontract work. Emaar MGF's bank guarantee from a separate project for the CWG has been blocked and even as the firm is in the queue to raise fresh funds, its payment due to ACIL may get delayed that will affect earnings position for the immediate quarter.

 

Stock Review: Nestle India

Nestle India's market leadership, diversified presence and lower competitive intensity in the under-penetrated foods and beverage (F&B) category helped it post robust sales growth of 26 per cent year-on-year (y-o-y) to 1,641 crore in the July–September quarter.

However, the company had to grapple with rising input costs and higher ad spends to maintain its market share, especially in the noodles segment, which led to a 27 per cent rise in total costs. Consequently, the operating profit margin slipped by 80 basis points, to around 20 per cent, and the net profit margin by 67 bps to 13.3 per cent.

The instant noodles market, Nestle's mainstay, recently witnessed the entry of new and large companies such as ITC (Sunfeast Yippee), Hindustan Unilever (Soupy Noodles) and GlaxoSmithKline Consumer Healthcare (Foodles). Analysts are cautious about the rising competition and the expected pricing pressure Nestle will face in the times to come. It will have to gear up on ad spending to maintain market share (currently above 80 per cent).

On the other, input costs (mainly wheat, sugar and milk) are on the rise and high inflation is expected to keep raw material costs firm, despite good monsoons. Nestle now plans to focus on lowpriced products and penetration in rural areas, especially in Tier-II and Tier-III cities. All these factors will put margins under further pressure.

Any action on the company's intention of domestic acquisitions and expanding product portfolio in the packaged foods category, including breakfast cereals, will be a major positive move. Considering margin pressures amid rising competition, the stock, trading at 35 times calendar year 2011 estimated earnings, seems to be in an overbought zone. However, current valuations factor in the near-term growth potential, leaving no room for any negative surprises, say analysts at Angel Broking.

Entry of new players in the company's key business segment is likely to challenge its market leadership and cap margins

Stock Review: Lupin

 

Investors can hold on to Lupin's stock but with an eye on the growth numbers of the company's branded business in the US and its performance in the domestic market

 

LUPIN'S second quarterly results were in line with the market expectations. Net profit rose 35% on a 26% rise in revenues. This along with the company's performance in the past several quarters, presents a picture of a leading pharma company on a firm and steady growth path. However, investors need to watch out for any continued signs of weakness in certain segments, such as domestic formulations and branded business in the US.

BUSINESS:

Lupin, with an annual turnover of over Rs 5,000 crore, has moved up the rankings to emerge as the fourthlargest pharma company in India. It has the highest share of business from the US among its Indian peers — figuring among the top 10 largest generic companies in the US market. The company has a presence in the branded and generic markets in the US, Japan and Europe. It is also increasing its footprint in the emerging markets of South Africa and Australia. Having started its business in India, the company has grown its basket from anti-TB drugs to incorporate drugs catering to the high margin chronic therapeutic areas.

FINANCIALS:

Over the past 16 quarters, Lupin has doubled its annual consolidated revenues. Operating profit margin rose from 16% to 21% during the same period marked by growth across all segments. The company's organic growth has been supplemented with its inorganic expansion. It gained access in foreign markets or achieved size and scale in markets where it has a presence through partnerships and acquisitions of front-end units abroad. It acquired Kyowa in Japan, Hormosan Pharma in Germany, Generic Health in Australia, Rubamin Laboratories in Vadodara and Antara in the US. The company also entered into an alliance with Forest Laboratories to market the latter's products in the US. Its rapid inorganic expansion — five in a single year of 2007-08 — and aggressive product launch has enabled it to be an industry outperformer consistently for the past few quarters now.

   Lupin's stock performance on the bourses has also mirrored its financial performance. Against the 33% increase in the Sensex in the past one year, Lupin's stock has surged by 83.5%.

OUTLOOK:

Going forward, the company is likely to earn from the launch of portfolio of oral contraceptives in the US market. The launch of Allernaze has been stalled for now due to manufacturing glitches. However, once launched, this drug has the potential to boost the company's branded business in the US. The company's domestic formulations business is growing below the average market growth of 18-20%. Gaining a foothold in the competitive domestic market is also a challenge for the company in the near term.

VALUATION:

The company is valued at nearly four times its annual revenues. Its stock is trading at a consolidated price to earnings multiple of 25. These are fair valuations , considering the fact that most of the future earning visibility has been factored in. The stock has already seen a significant runup in the past. Investors can hold onto the stock, but with an eye on the growth numbers of the company's branded business in the US and its performance in the domestic market.

 

Stock Views on ICICI BANK, DISHMAN PHARMACEUTICALS

RELIGARE SECURITIES on DISHMAN PHARMACEUTICALS

Religare Securities downgrades Dishman Pharmaceuticals from `Buy' to `Hold' and revises the target price from 280 to 192. Dishman Pharmaceuticals (DISH) reported a disappointing set of numbers for Q2FY11. While revenues were in line with estimates, adjusted PAT was over 50% below street expectations. The company's profitability hit its lowest level in the last 12 quarters; though it will start improving from next quarter onwards, and the process will be gradual. The company has also cut its already subdued (15%) revenue growth guidance for FY11E to 10%. Religare was expecting a sharp recovery in H2FY11E; however, this seems unlikely now, given the company's poor show in recent quarters and a bleak outlook for CRAMs. At the revised earnings, the stock would trade at a P/E of 12x FY12E earnings. These valuations would be at the lower end of the historical trading band.

JM FINANCIAL on ICICI BANK

ICICI Bank reported Q2FY11 net profit at 1,240 crore, up 19% Y-o-Y. NII was ahead of expectation on margins improvement while non-interest income came lower despite strong fee income growth on treasury losses. Provisions declined 40% Y-o-Y on improving asset quality trend. The merger added a strong franchise with 463 branches taking the total to 2,501 branches and contributed 3% to loan book and 6% to deposits. Bank Of Rajasthan also added 2,000 crore of Rural Infrastructure Development Fund (RIDF) bonds to the investments of ICICI Bank, taking the total investment in RIDF to 20% of the non-SLR book. These bonds generate 4.5% yield. BoR's contribution at PBT level in Q2 is negligible. NPAs declined 23 bps Qo-Q with coverage ratio improving to 69% even as provisions continued to decline. Going forward, turnaround in retail segment and strong macro economic outlook would drive improved delinquencies, resulting in sharp decline in adjusted credit cost from 183 bps in FY10 to around 75 bps in FY13E. ICICI Bank in its new form with significantly improved liability franchise and derisked balance sheet is ready for a new phase of prudent growth

Have grievances against your insurance company?

Here are some channels that will help resolve your grievances

   This doesn't mean that a policyholder is entirely at the mercy of insurance companies. During the past few months, the insurance sector has witnessed a slew of regulations framed by the Insurance Regulatory and Development Authority (IRDA) aimed at protecting the interests of the policyholders. More recently, Irda chairman J Hari Narayan has indicated that the Insurance Ombudsman would be empowered further.

   While the process of giving teeth to the ombudsmen may take a while, you can get acquainted with the intricacies of the existing grievance redressal infrastructure and the procedure to be followed to make yourself heard.

Round One:

Most companies offer a host of channels – branches, phone call, e-mail as well as snail mail — to policyholders to register their complaints. Typically, you can approach the company's grievance redressal officer, if you find that the customer service department is not of much help. The insurance companies are required to maintain a well-defined procedure for receiving and resolving grievances at their branches, too. They have to specify a time frame within which various types of grievances must be resolved. While the companies can decide the time-limit, they are required to send a written acknowledgement within three working days of the receipt of the complaint. Any failure on the part of the companies to stick to the deadlines will make them liable to penalties.

   If the complaint is resolved within three days, the insurance company will have to inform the individual along with the acknowledgement. If not, then the company will have to resolve it within two weeks of receiving the complaint and send a final letter of resolution.

   If the insurance company decides to reject the complaint, it has to give a reason along with information on further redressal avenues that the complainant can pursue. Remember, if you do not react within eight weeks from the date of receiving the insurer's response despite being dissatisfied with it, the company will assume that the complaint has been resolved.

Round Two:

If the redressal officer wasn't much of a help, then you can approach either Irda's Grievance Redressal Cell or the Insurance Ombudsman, depending on the nature of your complaint. The offices of the ombudsman are authorised to mediate and, if necessary, award compensation to policyholders. They handle cases involving insurance contracts with a value of up to 20 lakh.

   The Insurance Ombudsman can make recommendations within one month of the receipt of the complaint. Once you receive a copy of the recommendation, you have to send a written communication indicating your acceptance of the settlement within 15 days. If the ombudsman gives a verdict, which has to be delivered within three months, the insurance company has to comply with the order. If you are not satisfied with the verdict, you can take recourse to consumer forums or civil courts. So what are the kinds of complaints that can be heard by the ombudsman? The key one relates to rejection (whether partial or total) of claims, in addition to disputes about premiums; policy wordings in case the disputes relate to claims; delay in settlement of claims and non-issuance of any insurance document after collecting the premium.

Irda's Grievance Redressal Cell:

Unlike the ombudsman, this redressal cell does not have the authority to pass orders. However, complaints addressed to the cell are taken up with the insurers. These could include delay or lack of response pertaining to policies or claims and complaints about agents' conduct. "Since the awareness about the ombudsman is low, Irda's campaign (the toll-free number — 155255 — has been publicised widely) has been creating awareness about the recourses available to policyholders. You can approach the cell directly, and where required, you will be redirected to the ombudsman under whose jurisdiction the complaint falls," informs an Insurance Ombudsman official. You can get in touch with the cell via mail (the email IDs as well as the postal addresses are listed on the Irda website).

   Also, ensure that you send your complaint yourself – the ones forwarded by third parties including lawyers or agents are not entertained by the cell. Similarly, complaints with incomplete information are also not heard. Therefore, it is imperative to disclose all the details in the complaints registration form available on the insurance regulator's website.

   So though the grievance redressal mechanisms are in place, you need to make sure that you are alert while dealing with insurance companies and follow the procedure laid down for an effective solution to your problem.

AT YOUR SERVICE


You must first register your complaints with the insurer. You can approach the Ombudsman only if you have not received any feedback from the insurer or are not satisfied with the given response

After you have received a copy of the Ombudsman's recommendations and are satisfied with it, you have to send a written communication, indicating your acceptance within 15 days

The Ombudsman handles cases with a value of up to 20 lakh and has the authority to mediate and give a recommendation, or award compensation, which is binding on the insurer

You can also get in touch with Insurance Regulatory Development Authority's Grievance Redressal Cell through a toll-free number 155255

The Ombudsman does not hear matters related to the conduct of agents. This can be reported to the Insurance Regulatory and Development Authority's Grievance Redressal Cell

 

You can approach civil and consumer courts directly to resolve your grievance. But do note that the Ombudman will not take up your case if it is pending with other courts