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Parag Milk Food Limited | Try To SIP In

 

Parag Milk Food is an upcoming diary production brand. Started in 1992, the factory is located on the Mumbai-Noida highway.


BRANDS AND PRODUCTS

KEY FINANCIALS

Current Market Price (CMP): Rs. 253.3 – Rs. 254.30

Market Capital (Avg): Rs. 2200 Cr.

Book Value: Rs. 47.72

EPS: 1.20

P/E: 37/38, Which was around 58 in the recent past. Has been reduced drastically within a short span of time ( 2 Months ). Which can be considered as a positive indication towards it’s price stability.

P/B: 5.31 Which is less than Vadilal Ind (7.62), Britannia (18).

Face Value: Rs.10 That’s what many good businesses keep-up their face value.

Dividend (%): 0. May consider it as, the company is utilising the profits entirely for its growth. Hence the huge growth rate can be expected. 52 Week low /high: Rs. 201.75 /Rs. 357. I hope it will soon cross the 52 week high.

GROWTH RATE

There is a considerable improvement in sales of Rs. 14 Cr for the quarter ended March 2017, as compared to the previous year. That’s in comparison with the quarter ended March 2016.

The Net Profit for the financial year 2014 is Rs. 16  Cr., whereas by the year 2016 it has been improved to Rs. 47.30 Cr. That’s we can consider as a growth rate of around 200% for 2 years. It may jump to 400% for the coming 2 years, technicals are Suggesting.

TECHNICALS

Consolidation phase is over. What’s left is the distribution phase. During distribution phase, who are really going to gain are the long term investors. One big tally takes the stock value to the level that will surpass all our expectations. Better to keep invested to be the part of that in imaginable growth and prosperity.

Don’t forget to write your valuable comment below.

Dare to reach the target price here

Updates

  • Today, ‘Buy Signal’ has been triggered. Just buy and hold for the short-term target of 290+ (04/10/2017)
  • Parag Milk Foods announced the launch of a digital TVC for its whey protein product – Avvatar Absolute whey protein.
    Powered by Capital Market – Live News

FED Rate Hike And Its Effect on Global Markets

US bonds are believed to be the safest debt instruments in the world. If there is a hike in the interest rate there, that will definitely affect the global markets in proportion. Here, markets mean not only the bond markets, but also include currency, derivative and equity.


What is ‘FED Rate Hike’

Us Fed plays the similar role in the US, as that of the Reserve Bank of India in India. The US Monetary Policy is determined and decided by a committee called ‘The Federal Open Market Committee’. The committee-meet has so much global importance that, investors, analysts and policy makers, unanimously cross their fingers and wait for the result. That’s the impact of FED rate has on Global Markets.

Queries Details
Headquarters

Established

Chair

It’s a Central bank of

Currency

Reserve requirements

Bank rate

Interest rate target

Interest on reserves

Interest paid on excess reserves?

Eccles Building, Washington, D.C., U.S

December 23, 1913 (104 years ago)

Janet Yellen

United States

United States dollar
USD (ISO 4217)

0 to 10%

0.6% to 1.50%

1.25% to 1.50%

1.25%

Yes

US, being the world’s biggest economy, Federal Reserve of US and its actions has the capacity to stir the Global Markets. The dollar being the world’s reserve currency, decides the value of other world currencies against its value. FED rate hike /cut has the power to control its value in global markets.
US Fed Rate Hike – means, Federal Bank of US is willing to provide the banks of US with the hiked interest rates, for their lending and borrowing activities. Which, in turn, leads to hiked /increased interest rates on bonds, saving deposits, loans etc.

Due to rise in interest rates in the US, the value of Dollar becomes increased, making it more attractive to the investors, in comparison with others currencies, including Rupee.

 

What is FITL /Funded Interest Term Loan And WCTL /Working Capiatl Term-Loan

Due to the burden of non-performing assets and debt problems, companies may fail to perform well, irrespective of their best performance track record. In-order to tackle this problem and provide the companies, a breathing space, RBI has bought a fixing tool called a ‘Funded Interest Term-Loan’ (FITL).


At times, when businesses feel the need for extra capital to run the day-to-day operations of the business (Working Capital), RBI has facilitated a provision called WCTL / Working Capital Term_Loan. Under this provision, RBI guided the Banks and Financial Institutions, to extend a relief /concession to potentially sick SSI Units (Small Scale Industries), under a rehabilitation program. Companies mostly utilize this facility to avail the extra capital, based on the opportunities /threats present in the market.

Working capital is a money, that is used to fund the short-term (usually less than a year) operations of a firm. This is the capital that’s generally rotated to generate earnings. The other areas of employment of the working capital include, the purchase of the necessary inventory and receivables financing.

The Working Capital can be classified as CAPEX (Capital Expenditure) and OPEX (Oerating Expenditure). CAPEX covers long-term fixed assets, whereas the OPEX covers the capital required to run the day-to-day operations of the business. Both CAPEX and OPEX is catered by the WCTL.

The working capital finance is available in both Indian as well as foreign currencies.

The WCTL can be categorized into funding facilities and non-funding facilities.

Under funding facilities, banks /financial institutions provide the direct funding and the necessary assistance to purchase the assets and /to meet the business expenses.

The non – funding facility is an indirect help provided by the banks and financial institutions to the companies. Under this facility, banks issue companies, a letter of credit (LC) /guarantee to their suppliers /customers (Government /Non-Government) for procurement of goods and services on credit.

Stock Shots

Lakshmi Energy and Foods Ltd. Q4 results reveal that an amount of Rs. 924,53 Cr., has been paid towards the interest of FITL and WCTL. The time given to payback, is 8 years, which is usually not more than 5 years. Approved by the IEC under RBI guidelines, hopefully the company is utilizing the funds successfully. The overall annual income from operations has grown by Rs.10.67 Cr. Which is not reflected in the overall profit due to the payment of Rs. 924.53 Cr towards interest costs of FITL and WCTL. So, we have to consider it as an effective employment of funds acquired, for its progress.  Hopefully the next quarter will be far better than this and so as our returns.

Technically the chart is bullish. Stay invested.

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Preferential Allotment Of Shares | Impact On The Current Market Price Of The Share

When a company has a debt, and wants to reduce it or would like to expand the existing business, there are many methods to raise the required funds. But of all, the easiest one is the allotment of preferential shares. Through the allotment of preferential shares companies can raise debt, without much must to follow norms /paper work. Whereas, the other methods of acquiring capital, needs procedural enhancement of norms and time. That means, they are very time consuming and complicated in comparison with an allotment of preferential shares directly to the second party.


Preferential allotment of Shares is the process, through which shares are allotted to the selected group of investors /institutions /companies on a preferential basis. Under this process shares are allotted to the investor with an agreement that, whenever the company decides to pay dividends, the holders of the preference shares will be the first to be paid.

  • Cumulative Preferred Stock
  • Non-Cumulative Preferred Stock
  • Participating Preferred Stock
  • Convertible Preferred Stock. This is also simply called as the Preferred Stock

Benefits and Drawbacks of Preferential Share Holder

Benefits

No brokerage expenses

Preferential shares are preferred over the common shares, while allotting dividend

In the case, if the company is not able to pay a dividend in the current year, the preferred shareholder has the right to claim that dividend in the subsequent years.

In the event of liquidation of a company, preferential shares takes precedence over the common stock. That is, in the case company goes bankrupt, preferred shareholders are paid off first, before the common stockholders. Capital is secure.

Drawbacks

The first and the foremost drawback is that, the preferred shareholder possesses limited voting rights while passing resolutions of the company. Whereas an equity share confers on its holder, a right to vote on all resolutions that require shareholder approval under the relevant act /law /the articles of association of the company. Also enjoy the right to appoint or remove the directors and auditors of the company, as well as approve the company accounts.

Preference shares are riskier than bonds, but less riskier than equity.

Preferential shares are preferred after the NCDs during company bankruptcy and the consequential liquidation.

Effect On EPS & Stock Price

Positive Effects

Few companies start to perform well after the allotment of preferred stock. This depends on the factors like, whom the stock is allotted and how successfully the raised fund is utilized for the growth of the business. If, the stock is issued to ‘well informed veteran investors’, then their participation will definitely drive the business towards its growth.

Negative Effects

Diluted Earnings Per Share takes into account all the outstanding convertible securities, like convertible debentures, convertible preferred shares, stock options and warrants. Hence diluted EPS gets affected by the preferred stock if it is convertible.

The preferred stockholders, usually exercise their right to convert the preferred stock into the common stock at a pre-agreed ratio. They do so, if stock price hikes after the issuance of preferred stock. Due to which, the number of shares increases. Thereby, reducing the EPS and in turn the stock price.

Hence, a convertible preferred stock can be considered as a dilute, which increases the number of shares, reduces EPS and hence the stock price.

Preferential shares are not accessible to common investors. Companies prefer high net worth individuals, institutions and other companies for preferential allotment. And, the whole process is carried out privately through a private placement of the offer. Hence available for only high net worth individuals. The minimum threshold amount to invest is Rs.10, 00,000 (Rs.10 lakhs). This can be considered as one of the distinctive features of a Preferential allotment of shares by the companies.

 

Corporate Debt And Its Variations

There are four basic activities that companies usually show as the  sources of generation and use of cash. They are – the income from operations, cash generated by selling assets and /investments (if any), capital generated by issuing new shares and finally the cash flow due to debt. Most of the companies generate cash flows by using all these 4 mediums. But, few differ from, heavily relying on any particular one and less on the others.


As a part of expansion /fastening the growth, companies mostly rely either on debt or issue equity, either to the public or private players to accumulate the required capital. In the case of debt, interest cost adds-up to the borrowed capital. The result is that there is a negative cash-flow number on the balance-sheet. So, the borrowed funds need to be utilized efficiently, to make the overall cash flow a positive good number. Lets discuss about it in detail.

What is ‘Debt’

Whether it is an individual or a company, when the current finances don’t allow to make large purchases /harnessing the business activities, the most preferred alternative is making debt /borrowing the amount required, from the lender. This happens under an agreement that, the borrower will pay back the borrowed amount, later in the future, usually with along with an interest and that too at an agreed rate.

Hence, debt can be defined as the process of borrowing, a certain amount of capital, by one party (either by an individual or a company) for the purpose of financing the current needs, from an another party, usually called, the lender, under an agreement that, the borrowed party repays the borrowed amount called the debt, along with an agreed rate of interest, later in the future.

In the case of businesses, debt is a good alternative method of making the business a successful one, if utilized properly for its growth.

Types of Debt

Personal Debt

Credit Card Debt, Mortgages, Auto Loan and personal Loan fall in this category. Here the banks are the lenders /creditors, and the investors are the borrowers.

Corporate Debt

This type of debt is done by the companies rather than the individuals. Companies when they need funds, issue Bond and Commercial Papers. Through bonds and commercial papers they collect the required funds and utilize the same for the growth of their businesses. This type of debt facility is particularly in the corporate sector and not available to the individuals. Here, investors are the lenders /creditors and companies are the borrowers.

Types of Corporate Debt

Bonds

Bonds are a type of debt instruments, that allows companies to collect funds in a very amicable manner from the investors. Here investors may be either individual /institutional investors. Once the bonds are issued by the company, they are available to the public as well as institutional investment firms through banks and other financial investment channels.

A bond is a written agreement between the issuer company and the investor. Through bonds companies sell a ‘promise of repayment’ in the future. This repayment includes an interest rate called Coupon and the original amount received. The coupon rate is decided by the company at the time of issuance itself.

Each bond has its face value and the coupon rate. The purchaser of the bond receives the basic amount that’s invested at the end of the maturity period. And, the Coupon Rate, periodically at an intervals fixed at the time of issuance /at the end of the maturity period.

Commercial Papers

When companies are in scarcity of funds to pay off the accounts receivable, inventories and to meet all the short-term liabilities, they usually issue commercial papers.  During 1985 – 1990 there, the world economy witnessed a trend called the liberalization. This was the background push for the introduction short-term monetary instruments called the commercial papers in the Indian Money Market. An effective reform to avail the funds for short-term obligations by the corporate companies. This can be considered as an innovation in the financial system of India.  These are the most short-term instruments in Indian Money Market since 1990 onwards.

Prior to injection of commercial paper in Indian money market, that is before 1990, the corporate companies had to borrow the working capital from the commercial banks. Under this traditional process, companies were pledging the inventory as a collateral security. The introduction of commercial paper in the Indian money market avoided, all the hassles of borrowing the working capital, from the commercial banks. But, because of not backed by any form of collateral, here there are chances of default risk by the companies. This is usually called the corporate default problem. That’s the risk associated with these monetary instruments.

Role of Credit Rating Agencies

Credit Rating Agencies rate the companies depending on their secured credit. Hence it is always desirable to invest in commercial papers of companies with high credit ratings. That’s a company with high credit rating has, less chances of default risk. Others are riskier.

Companies with high credit rating has the advantage of finding buyers without discount to their cost. Whereas low credit companies need to offer a substantial discount (higher cost) for their debt.

In India, the maturity period of commercial papers ranges from 15 days to 1 year. Whereas in the United States, it’s no longer than 270 days.

Debentures

A debenture is just like a bond, but not not backed by any collateral. The credit and faithfulness of the issuer company are its underlying security. Debentures are issued to raise the short-term capital. Companies when they are expected to pay for future expenses or for expansion plans, they raise the capital through the issuance of debentures.

In corporate finance, a Debenture is a medium to long-term debt instrument, used by large companies to borrow money, at a fixed rate of interest.

In other words, a debenture is a movable property, issued by a company in the form of indebtedness, specifying the dates of redemption, repayment of principal and interest. Debentures may or may not create a charge on the assets of the company.

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Importance of EPS | Difference Between EPS And CEPS

Earnings Per Share (EPS) different from the Cash Earnings Per Share (CEPS) in the similar manner as that of Cash Flow is different from the Net Income.


Basic Earnings Per Share is the function of Net Income of a Company. Whereas, CEPS is a function of the Cash Flow generated by a company. But, both are calculated on a per share basis.

Earnings Per Share /EPS – And How It Indicates the Company Performance

Company’s periodical profit is commonly distributed over the number of shares outstanding. So earnings per share is the calculation of the portion of profit that an each individual outstanding share gets allocated by the company.

Earnings Per Share looks at the Net Income of a Company and is calculated per Share.

The formula used to calculate is as follows.

EPS =  Net Income – Dividends Paid on Preferred Stock / The Number of Outstandingstanding Shares

The calculation will be more accurate, if we use a Weighted Average Number of Shares over the reported period, instead of shares outstanding at the end of the period. This is the most common phenomena of calculation followed by many Data Sources. This may simplify the calculation, but it’s not so accurate method of estimating the profit distribution.

Example

Let’s assume that, a company ABC has a Net Income of Rs. 10 Crores for the financial year 2016. And, the company paid out, Rs. 1 Cr. In the form of Preferred Dividends. If the company’s outstanding shares for the first 6 months was, Rs.100 million for the first 6 months and Rs.110 million for the next half. Then, the EPS is calculated as follows.

Weighted Average Number of Shares Outstanding = 100 (1/2) + 110 (1/2) = (50+55) = 105 M

And, EPS = 90000000/105000000 = 0.85

Significance of Earnings Per Share

  • Earnings per share is the best indicator of any company’s profitability in comparison with other stock valuation methods.
  • It is the major component, while calculating the Price –to-Earnings Ratio (P/E).

An Important Aspect to Remember

If we need to choose between two companies with the same EPS value, it’s good to choose a company with less equity /capital investment. The company is said to be more efficient, as it’s capable of generating the same income with comparatively less capital.

One must not analyze the company performance, by simply looking at a single financial ratio, which may lead to a manipulated calculation. So it’s always a good practice to look at, all the important aspects of a business, including its earnings growth potential and then come up with a single big aspect to decide upon.

Types of EPS

Basic EPS

There are companies with simplified capital structures. These companies don’t possess, any diluted-outstanding shares /securities like preferred shares, convertible debentures, warrants or equity options. While calculating the EPS, the weighted average number of shares is simply the number of shares outstanding over a period of time.

For example, company ABC has 9 million of shares outstanding, paid a preferred dividend of Rs. 1 million from the net profit of Rs. 10 million, then its basic EPS is,

Basic EPS = (10-1) /9 = 1

Diluted EPS

For companies with complex capital structure, it’s preferred to calculate, the diluted EPS.  Then only, we will arrive at the correct number of EPS, that reflects the actual profit distributed over the number of shares and for the period, concerned for calculation.

For example, consider a company ABC, which has 9 million of shares outstanding, similarly as that of the previous company, but also has a convertible preferred shares of 1 million, which can be converted into 3 million common shares. And, if the company paid, preferred dividend of Rs. 1 million from the net profit of Rs. 10 million, for the last quarter. Then it’s diluted EPS is calculated as follows.

Diluted EPS = (Net Profit) – (Preferred Dividend) /(No.of shares outstanding + Number of common shares converted from convertible preferred shares)

Diluted EPS = (10 – 1) /(9+3) =  9 /12 = 0.75

See the difference. That’s what the difference between the basic and diluted EPS actually is.

Cash Earnings Per Share

There are so many other factors that directly or indirectly affect the total cash flow, vis a vis the earnings per share of the company. Hence, the cash earnings per share, takes into account all those extra factors and gives out a different EPS figure.

Factors like, depreciation, amortization of goodwill and such other tangible and intangible factors have their own impact on the company’s present and future performance. Of course affects the cash flow in its usual sense. Hence, it’s always a good practice to consider a ‘Cash earnings per share’ to come out with more accurate numbers called CEPS. This is the number, that indirectly tells about the company’s past performance, vis a vis its future growth rate.

One more important factor that supports the accuracy of Cash EPS is that, the cash flow cannot be manipulated as easily as the net income.

Formula to calculate Cash Earnings Per Share /CEPS

We can calculate the CEPS in three different ways as follows.

Cash EPS = [Cash Flow (Operating)] /[Diluted Outstanding Shares] (or)

Cash EPS = EPS + Amortization of goodwill and other intangible items (or)

Cash EPS =  [Net Income + Depreciation] /Oustanding Shares.

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