The Scoop on Steel: Boom times or Value Trap?

  • In FY2019, India is predicted to replace Japan as the world’s second largest producer of steel
  • Demand will be largely driven by domestic demand, with significant constraints on domestic supply
  • Raw material cost can be upto 70% of the total cost of steel producers and is a bigger risk than a global tarrif war
  • Operating leverage will not mitigate raw material risk, price is not expected to spike and as a result realizations per tonne are not expected to change dramatically
  • Value may be found in distressed companies or leading steel makers but the rest could be value traps

Metals and mining was the best performing sector of 2017. Further upstream, carbon rod manufacturers like HEG have created enormous investor wealth. Further upstream, investors are now looking at steel companies to lead the next wave of wealth creation. Continue reading “The Scoop on Steel: Boom times or Value Trap?”

Investing in Road Infrastructure stocks? Here’s one strategy.

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

While the goose of private capex has been cooked, the Government of India is taking every step to boost public spending on infrastructure.  The focus is currently on roads. In 2015-16, NHAI awarded about 50 projects to build 2,624 kilometres of roads. A budget of US$22.35 billion has been set out by the Indian Government for infrastructure projects, for which highway construction will play a major part. Continue reading “Investing in Road Infrastructure stocks? Here’s one strategy.”

Digitization & Demonetization: Has Microfinance Lending in India changed forever?

This is follow up on my previous post on how rural financing and lending in India have changed irrevocably due to Demonetization and Digitization.

Unfortunately in India, loans are expensive for the poor. The Public Sector Banks will not lend to the poorest outside of the agricultural loans and political sops. At the same time all other goods are subsidized for the poor because they are funded by public taxes. Continue reading “Digitization & Demonetization: Has Microfinance Lending in India changed forever?”

Microfinance : Demonetization. Budget. Beyond

The last few months have been testing for NBFCs in general. Demonetization was a black swan event that brought fears of a repeat of the AP Crisis in 2010 that served a near death blow to Microfinance in India.

On paper, Microfinance remains a fragile business model when compared to banks and depository institutions.

Microcredit:

Borrow -> Lend at spread of 10-15%

Banks:

Deposits + Borrowings (RBI, Bonds etc.) -> Lend at net interest margins of 2-5%

Without the cushion of deposits, an MFI must disburse what it borrows, and borrow more to grow its loan book. The cost of customer acquisition for MFIs is also higher than banks.

Continue reading “Microfinance : Demonetization. Budget. Beyond”

Cinderella at the Ball – Are Airlines still a Value Trap?

Once dismissed as a “death trap” by Warren Buffet, Airlines saw frenzied buying in 2016. In third quarter Buffet’s Berkshire was seen accumulating stocks of not one but multiple airlines. In India, airlines listed on the exchanges saw buying by marquee institutions and funds. In 2016 the much maligned Airlines business caught the fancy of the investment community. What changed? Continue reading “Cinderella at the Ball – Are Airlines still a Value Trap?”