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General Insurance Market Share in India

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Insurers
Market Share %
The New India Assurance Co Ltd13.1%
ICICI Lombard General Insurance Co Ltd8.7%
Bajaj Allianz General Insurance Co Ltd7.7%
United India Insurance Co Ltd6.6%
The Oriental Insurance Co Ltd6.3%
HDFC Ergo General Insurance Co Ltd6.3%
National Insurance Co Ltd5.6%
Tata AIG General Insurance Co Ltd5.3%
Star Health & Allied Insurance Co Ltd4.7%
Reliance General Insurance Co Ltd4.4%
SBI General Insurance Co Ltd4.0%
Agriculture Insurance Co Of India Ltd3.7%
IFFCO-Tokio General Insurance Co Ltd3.5%
Go Digit General Insurance Ltd2.8%
Cholamandalam MS General Insurance Co Ltd2.6%
Care Health Insurance Ltd2.2%
Universal Sompo General Insurance Co Ltd1.8%
Niva bupa Health Insurance Company Ltd1.7%
Future Generali India Insurance Co Ltd1.6%
Royal Sundaram General Insurance Co Ltd1.2%
Aditya Birla Health Insurance Co Ltd1.1%
Shriram General Insurance Co Ltd1.0%
Magma HDI General Insurance Co Ltd0.9%
Liberty General Insurance Co. Ltd0.8%
Acko General Insurance Ltd0.6%
ManipalCigna Health Insurance Co Ltd0.5%
Kotak Mahindra General Insurance Co Ltd0.5%
ECGC Ltd0.4%
Edelweiss General Insurance Co Ltd0.2%
Kshema General insurance0.2%
Raheja QBE General Insurance Co Ltd0.1%
Navi General Insurance Co. Ltd0.0%
Grand Total100.0%

for FY24 till October 2023 based on gross premium underwritten

Tata Technologies IPO: Key Details, Live Subscription, Financials, Strategy, Industry Growth, Strengths, Risks, and Peer Analysis

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Tata Technologies

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About the Company

Tata Technologies Limited, established in 1994 and headquartered in Pune, India, is a key player in IT consultancy and engineering design services. As a subsidiary of Tata Motors Limited, the company has a strong global presence with offices in major cities across India and internationally. Tata Technologies is renowned for its expertise in outsourced engineering, digital transformation services, and technology solutions, including software reselling and upskilling education programs. With over 12,000 employees, the company’s business is categorized into two primary segments: Services and Technology Solutions.

IPO Details

Issue Open: 22 November, 2023
Issue Close: 24 November, 2023
Price Band: Rs 475-500 a share
Transaction Type: Offer for Sale of 60,850,278 equity shares
Bid Lot: 30 Shares and in multiple thereof
Percentage of Offer SIze (Allocation)
QIB: 50%
Retail: 35%
NIB: 15%

Reservation
Tata Motors Shareholders:
6,085,027 equity shares, i.e., 10% of the offer.

IPO Timeline

IPO Open DateWednesday, November 22, 2023
IPO Close DateFriday, November 24, 2023
Basis of AllotmentThursday, November 30, 2023
Initiation of RefundsFriday, December 1, 2023
Credit of Shares to DematMonday, December 4, 2023
Listing DateTuesday, December 5, 2023
Cut-off time for UPI mandate confirmation5 PM on November 24, 2023


Financial Performance

(Rs Cr)FY21FY22FY23H1FY24*
Revenue2380.93529.64414.22526.7
EBITDA385.7645.7820.9464.8
EBITDA Margin (%)1618.01918
Net Profit239.2437624351.9
EPS (Rs)5.910.815.48.7
Dividend Yield (%)2.4                      –
RoE (%)1119.02112
RoCE (%)1425.02415


Revenue Breakdown (H1 FY24)

CategorySub Category            Rs Crore            % of Revenue
TechnologyProducts234.99.3%
TechnologyEducation305.412.1%
ServicesAutomotive Services1745.869.1%
ServicesOther Services240.69.5%
Total2526.7

Geographical Distribution (H1 FY24)

RegionIn ₹ Crore% of Revenue
India887.835.1%
UK572.622.7%
North Korea486.719.3%
Rest of World472.718.7%
Vietnam38215.1%
Rest of Europe1074.2%
Others90.73.6%
Total2526.7

Business Strategy

1. Deepen Engagements with Existing Clients: Enhance the use of solution offerings and cultivate long-term strategic partnerships, especially with top ER&D spenders in the automotive, aerospace, and TCHM industries. 

2. Target Top ER&D Spenders in Key Verticals and Geographies: Focus on securing projects with leading ER&D spenders and new energy vehicle companies. Explore growth opportunities in key markets like France, Germany, and China with tailored strategies. 

3. Expand Capabilities in Digital Engineering and Embedded Systems: Respond to growing digital technology demand in Automotive ER&D, especially in autonomous and connected technologies. 

4. Strengthen Service Delivery: Optimize delivery processes and employee pyramid per engagement for increased efficiency and margins. Focus on on-campus recruitment, upskilling, and optimizing the onshore-offshore mix. 

5. Expand in the Education Sector: Leverage the iGetIT platform for engineering upskilling, particularly in the disrupted global manufacturing sector. 

6. Strategic Acquisitions and Partnerships: Pursue selective acquisitions for technology access, geographical expansion, and client base growth. Strengthen alliances with key industry players. 

7. Talent Development Strategy: Build a strong employer brand, attract new talent, and develop current employees with a focus on digital service lines.

Industry Overview
The global Engineering, Research, and Development (ER&D) services market is growing strongly. In 2022 the addressed market reached USD 170-180 billion, up from USD 145-155 billion in 2021. Breaking this down, Global Capability Centers (GCCs) contributed USD 65-70 billion to the total ER&D spend, while third-party Engineering Service Providers (ESPs) accounted for USD 105-110 billion.

Forward-looking estimates suggest the total ER&D market could expand to USD 255-265 billion by 2026, with GCCs potentially reaching USD 90-95 billion and ESPs USD 165-170 billion. The growth forecasts indicate a CAGR of approximately 9-11% for the total market, 7-9% for GCCs, and 11-13% for ESPs. This points to an incremental market opportunity of around USD 85 billion for the total addressed market and approximately USD 60 billion for the outsourced ER&D market over the next four years.

YearTotal ER&D Addressed Market ($ Bn)GCC ER&D Expenditure ($ Bn)Outsourced ER&D to ESPs ($ Bn)
2022170-18065-70105-110
2026 (Projected)255-26590-95165-170

Key Strengths

  1. Automotive Industry Expertise: Comprehensive services spanning the entire automotive value chain, including turnkey vehicle development for ICE, PHEV, and BEV.
  2. Advanced EV, Connected, and Autonomous Capabilities: End-to-end solutions for EV development, manufacturing, and after-sales, with capabilities in OTA services, ADAS, and EV system design.
  3. Strong Digital Capabilities with Proprietary Accelerators: Extensive digital services across the product life cycle, leveraging digital manufacturing, customer experience, and transformation solutions.
  4. Diverse and Marquee Client Base: Includes traditional OEMs, tier 1 suppliers, and new energy vehicle companies, ensuring a balanced mix of stability and growth opportunities.
  5. Global Delivery Model: Offers a balanced onshore/offshore model, enhancing client engagement and operational efficiency.
  6. Proprietary e-Learning Platform in Manufacturing: The iGetIT platform addresses the growing need for engineering upskilling and reskilling.
  7. Reputable Brand and Experienced Leadership: Backed by Tata Motors and the Tata Group, ensuring strong corporate governance and global network advantages.

Revenue from Anchor Clients (JLR and Tata Motors)

Fiscal YearRevenue from Anchor Clients% of Revenue
FY211021.142.9%
FY221112.331.5%
FY231505.434.1%
H1FY24953.337.7%

Key Risks

  1. Client Concentration: Heavy reliance on top clients, including Tata Motors and Jaguar Land Rover, poses a risk if these clients reduce their dealings or face business deterioration. For instance, in Fiscal 2023, these top 5 clients accounted for 88.40% of the revenue from TTL’s Services segment.
  2. Automotive Sector Dependence: High dependency on the automotive sector means any economic downturn in this sector could significantly impact business and operations.
  3. New Energy Vehicle Market Uncertainties: Significant future revenue is expected from new energy vehicle companies, many of which are startups. Their uncertainties in funding, growth management, and creditworthiness could adversely affect the business.
  4. Talent Dependency: Business success heavily relies on attracting, retaining, and optimally utilizing skilled engineering professionals and the management team.
  5. Vendor Reliance in Products Business: Dependency on single-source or limited-source software vendors and partners could affect service availability and cost.
  6. Intense Market Competition: The highly competitive engineering services market could affect pricing and profitability.
  7. Client’s Shift in Outsourcing Strategy: Clients reducing outsourced engineering work or setting up captive R&D centers could lead to a significant reduction in work volume.

Peer Comparison

Particulars
(in INR Crore)
Tata TechKPITTata ElxsiLTTSCyient
FY23FY23FY23FY23FY23
Profit After Tax624387.07551174514
Market Cap20,28340,526.052,64246,84918,979
PE33105.0704037
Revenue growth (%)2538.0272233
PAT growth (%)4340.03722-2
ParticularsH1FY24H1FY24H1FY24H1FY24H1FY24
Revenue growth (%)3461.016931
PAT growth (%)3561.022959

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What is Social Stock Exchange?

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Social Stock Exchange

Introduction to Social Stock Exchange

A social stock exchange (SSE) is a platform or marketplace where socially and environmentally conscious organizations and impact-driven investors can connect and participate in trading. The primary objective of an SSE is to raise capital for companies and organizations that operate with a social and/or environmental mission.

Unlike traditional stock exchanges, where the focus is solely on financial returns, social stock exchanges prioritize investments that promote social welfare, environmental sustainability, and ethical business practices. Companies listed on social stock exchanges are required to meet specific social and environmental standards and must demonstrate that they are making a positive impact on society.

Social stock exchanges have emerged in response to the growing demand for impact investing, where investors seek to generate both financial returns and social and environmental benefits. SSEs are relatively new, with the first one launched in Canada in 2019, but their popularity is increasing rapidly.

India’s Position

The concept of a social stock exchange was first proposed in the Union Budget of 2019-20, and SEBI has been working on the framework for it since then. Recently. SEBI gave the nod for the first social stock exchange in India to the National Stock Exchange (NSE) with at least three charitable organisations in talks with NSE to get themselves listed on the said social stock exchange. 

SEBI has proposed that the social stock exchange should be a separate platform on the existing stock exchanges, where only social enterprises and voluntary organizations will be listed. It will have a particular set of listing requirements, disclosure norms, and reporting standards. The social stock exchange will also provide investors with the opportunity to invest in social causes and earn a return on their investments.

The listing procedure for SSEs is similar to that of a standard IPO (IPOs). Participants are instead given Zero Coupon Zero Principal (ZCZP) instruments rather than shares. Moreover, unlike ZCZPs, investors in regular IPOs can sell their shares after the listing and profit. They resemble altruistic contributions more in that respect.

Conclusion

Social Stock Exchange is a nascent concept which is yet to be tested. Social investment needs to gain credibility before becoming a go-to method of investing or attracting any kind of Corporate Social Responsibility (CSR) funds. Social enterprises would benefit from this platform by finding investors who share the same values as that of the enterprise, but SEBI needs to diligently regulate the impact assessment of the capital raised through these social initiatives and set up organised structures without any loopholes before any investor confidence can be expected.

Therefore, investors are advised to proceed with caution considering the exchange possesses an inherent risk of not having any history and being built from scratch.

What is Corporate Governance and why it is so important?

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Introduction to Corporate Governance

Corporate Governance refers to the set of processes, principles, and values governing how a company is managed and controlled. It is an essential aspect of corporate management that helps ensure accountability, transparency, and fairness in running a business. It involves conducting business by following the preferences of the stakeholders, ethically. The board of directors and the relevant committees carry it out for the benefit of the company’s stakeholders. It all comes down to striking a balance between social and economic as well as individual and communal interests.

In India, Corporate Governance has gained significant importance in recent years due to several high-profile corporate scandals and frauds. The Securities and Exchange Board of India (SEBI) ensures that companies follow good corporate governance practices and protect the interests of all stakeholders, including shareholders, employees, customers, and the community at large.

Some of the critical issues of corporate governance in India include:

  1. Board Composition: Companies can face governance issues if their board composition is not diverse or if they lack independent directors who can act as a check and balance to management.
  1. Executive compensation: Companies can face criticism if the compensation packages of high-ranked officials are considered excessive or not aligned with performance.
  1. Related party transactions: Related party transactions, such as transactions with family members or affiliates of company insiders, can raise concerns about conflicts of interest.
  1. Insider trading: Insider trading refers to buying or selling a company’s stock based on information not available to the public. This can lead to illegal gains and erode public trust in the company.
  1. Accounting irregularities: Accounting irregularities, such as misstating financial statements or engaging in fraudulent accounting practices, can lead to significant financial losses for investors and damage the company’s reputation.
  1. Environmental and social issues: Companies can face governance issues if they do not prioritise ecological and social issues, such as sustainability and human rights, in their day-to-day operations and supply chains.
  1. Cybersecurity and data privacy: Companies can face governance issues if they fail to protect their data and the data of their customers from cyber-attacks and breaches.

Corporate Governance Cases 

Over the years, there have been several corporate governance cases involving Indian-listed companies, which denote the essential nature of good corporate governance practices and the risk associated with poor management practices. Here are some notable examples:

  • Satyam Computer Services: In 2009, Satyam Computer Services, one of India’s largest IT services companies, was involved in a major accounting scandal. The company’s founder and chairman, Ramalinga Raju, admitted to inflating the company’s earnings and assets for several years. This led to a huge drop in the company’s stock price and investor confidence resulting in legal action against the board.
  • Infosys: In 2017, a whistleblower alleged that Infosys’s senior executives were involved in irregularities related to the acquisition of a company called Panaya. This led to an investigation by the company’s board and the resignation of its CEO, Vishal Sikka.

The Gautam Adani-led conglomerate has also been facing issues with governance practices including alleged mis utilization of funds and related party transactions. While how much of it will be proved in a court of law is yet to be seen nonetheless Adani stocks have taken quite a beating from their previous levels correcting even by 50% in some cases with retail investors facing the brunt of it.

Conclusion

Good corporate governance is crucial for a company’s long-term sustainability and success. It helps to build trust and confidence among stakeholders, attract investment, and enhance the company’s reputation. Companies that follow good corporate governance practices are more likely to be financially sound and able to weather economic downturns and other challenges. Therefore, investors should always examine the corporate management practices of a company before investing and completely understand the risk associated with substandard corporate governance as it might lead to a complete erosion of wealth.

Elon Musk’s Plan to Monetize Twitter

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Twitter, the widely used microblogging platform, has faced difficulties in generating profits in recent years. In a bold move, Elon Musk acquired Twitter for $44 billion on October 27, 2022, and set his sights on making it a profitable business and transforming it into the everything app “x”. “Last 3 months were extremely tough, as had to save Twitter from bankruptcy. Twitter still has challenges, but is now trending to breakeven if we keep at it” said Elon Musk in a Tweet.

Since taking over the company, Elon Musk has taken several measures to cut costs, including reducing the headcount from 7500 to 2300. This move was aimed at streamlining the company’s operations and making it more efficient.

In this article, we explore the steps Elon Musk is taking to monetize Twitter and secure its future success.

Twitter Blue: A New Subscription Service

Shortly after the acquisition, Twitter launched Twitter Blue, a subscription-based service that provides users with a verified badge and additional features such as the ability to edit tweets, upload higher-quality videos, and have higher-ranked replies. This new service is priced at $8 per month and is a first step towards generating revenue for the company. With the growing trend of users seeking premium experiences on social media, Twitter Blue is well-positioned to attract a large number of subscribers.

Ad-Free Tier: A Higher-Priced Option

In addition to Twitter Blue, the company is said to launch another paid tier that will allow users to use the platform completely ad-free and with additional features. This service is expected to be priced significantly higher than Twitter Blue and will offer users a premium experience. The ad-free tier is a response to the growing demand for ad-free experiences on social media platforms, and it is expected to attract a significant number of subscribers.

API Goes Paid: A New Revenue Stream

Twitter’s API, previously free to use, could now cost as much as $100 per month. This change will provide a new revenue stream for the company and will be a significant shift for businesses that rely on API for customer service. With the growing importance of customer service in the business, Twitter’s API is well-positioned to generate significant revenue.

Introducing Payments: A Step Towards the Everything App “x”

Twitter is also working to introduce payments on the platform and has begun the process of obtaining regulatory licenses. This move is a step towards Elon Musk’s bigger vision of the “everything app,” which would allow users to carry out a wide range of activities within the platform. With the increasing trend of social media platforms moving towards becoming all-in-one platforms, Twitter’s payment feature is well-positioned to attract a large number of users.

Ad-Revenue Sharing with Content Creators

Twitter has introduced a new feature for Twitter Blue subscribers where they will earn a portion of the ad revenue generated by ads shown in the reply threads. This new feature is aimed at encouraging more users to create content on the platform and attract more advertisers, leading to increased ad revenue. The ability to earn revenue from ads is only available to Twitter Blue subscribers, making it a valuable incentive for users to upgrade. This innovative approach to monetizing Twitter is a cost for the company, but also an investment in its future success.

$1,000 Dollar for Gold Verification Badge

Twitter is reportedly offering Gold Verification Badges to businesses for $1000/month and affiliate accounts for $50/month. This verification provides a trusted and verified presence on the platform, helping businesses stand out and connect with customers. As businesses use Twitter to advertise and handle customer service, many will likely be forced to pay the high fee for the verification in order to maintain a credible presence on the platform and reach a wider audience.

Everything about India’s Central Bank Digital Currency

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A Central Bank Digital Currency (CBDC) is a digital version of normal paper currency, issued and backed by a country’s central bank. Many central banks around the world are currently working on Central Bank Digital Currency (CBDC) projects, with some countries in the early stages of exploring potential uses and others already implementing them, such as the Bahamas and Nigeria. The Reserve Bank of India made history on December 1, 2022, by launching the first pilot program for the Retail Digital Rupee (e₹-R). With the increasing popularity of digital payments and advancements in technology, the introduction of CBDCs is the next step in the evolution of money. This blog post will delve into all aspects of India’s Central Bank Digital Currency.

What is Central Bank Digital Currency?

India’s Central Bank Digital Currency(e₹), or CBDC, is defined as the legal tender issued by the Reserve Bank of India in a digital form. This means that it is similar to the paper currency that we are used to, but it exists in a digital form and can be exchanged at par with the existing currency. The Digital Rupee (e₹) is the official name of India’s CBDC and it is intended to be accepted as a medium of payment, legal tender, and a safe store of value. This means that it can be used to make purchases and transactions, it is recognized by the government as a legitimate form of currency, and it is considered to be a secure form of storing value.

How is it different from Cryptocurrencies?

It is the same as a fiat currency and is exchangeable one-to-one with paper currency. Only its form is different. The digital rupee is a currency that the RBI issues and the digital rupee will have the same function, but it won’t be a decentralised asset like cryptocurrencies. The digital rupee will be a currency issued by central banks responsible for governing and managing the asset.

Why India needs Digital Rupee?

The main reasons for looking into creating a digital currency in India are to lower the cost of managing physical cash, make it easier for everyone to access financial services, make the payment system more reliable and efficient, improve the way money is settled, encourage new ways of making cross-border payments, and give people the benefits of using digital currencies without the risks.

Will CBDC replace Paper Currency?

The goal of CBDC is not to replace paper currency, but to complement it and provide another option for people to use. This means that even if CBDC is implemented, paper money will still be a valid form of payment and will continue to be used by those who prefer it.

Types of CBDC (e₹)

CBDC can be classified into two broad types, viz. general purpose or Retail (CBDC-R) and Wholesale (CBDC-W).

  • Retail (CBDC-R): Retail CBDC would be potentially available for use by all viz. private sector, non-financial consumers and businesses. Retail CBDC is an electronic version of cash primarily meant for retail transactions. Retail CBDC can provide access to safe money for payment and settlement as it is a direct liability of the Central Bank.
  • Wholesale CBDC (e₹-W): Wholesale CBDC is designed for restricted access to select financial institutions. Wholesale CBDC is intended for the settlement of interbank transfers and related wholesale transactions. Wholesale CBDC has the potential to transform settlement systems for financial transactions and make them more efficient and secure.

Forms of CBDC (e₹)

CBDC can be structured as ‘token-based’ or ‘account-based’. A token-based CBDC is a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them. On the other hand, an account-based CBDC keeps records of all holders’ balances and transactions, showing who owns the monetary amounts.
Considering the features offered by both the forms of CBDCs, a token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash, while an account-based CBDC may be considered for CBDC-W.

Features of India’s CBDC (e₹)

  1. Sovereign currency issued by the central bank
  2. Is a liability on the central bank’s balance sheet
  3. Accepted as a medium of payment or legal tender
  4. Freely convertible against cash
  5. Holders need not have a bank account
  6. Lowers cost of issuance of money and Transactions

Difference between UPI and a CBDC (e₹) Transaction

UPI transactions involve bank intermediation, where funds are transferred from one bank account to another. digital rupee transactions allow the direct transfer of funds from one digital wallet to another, similar to cash transactions, without the intermediation of a bank.

Uncovering the Dark Side of Price-to-Earnings Ratio: Why It’s Not Always a Reliable Indicator

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The price-to-earnings ratio, or P/E ratio, is one of the first things that investors see before making investment decisions, But, like any other ratio, it has its limitations.  Price to Earning Ratio is a way to measure how much investors are willing to pay for a stock about how much money the company is earning. The P/E ratio is calculated by dividing the current market price of a stock by the company’s earnings per share. A higher P/E ratio means that investors are paying more for the stock of the company’s earnings, and vice versa.

For example, if a stock is currently trading at ₹2,000 and the company’s earnings per share is ₹50, the P/E ratio would be 40 (2,000 / 50). This means that investors are willing to pay ₹40 for every ₹1 of the company’s earnings.

What is important to note here is that there are certain cases where the PE Ratio fails as an accurate metric for measuring stock performance and might mislead an investor. Let’s have a look at some of these instances-

  1. One-Time Gains/Losses: The P/E ratio is calculated by dividing the current market price of a stock by its earnings per share (EPS). However, the EPS is calculated by taking the net income of a company and dividing it by the number of outstanding shares. There are some ‘black swan’ (one-time) events which might lead to the company having extraordinary losses or gains. These one-time gains or losses, such as the sale of a subsidiary or a large legal settlement. These “extraordinary items” can greatly skew the EPS and, therefore, the P/E ratio. For example, COVID-19 was a black swan event which proved to be a disaster for the hospitality sector, hotels and restaurants all around the world were shut down and thereby took a substantial hit on earnings, which would subsequently increase the PE Ratios of these listed companies owing to this one-time loss and present an incomplete picture of the scenario. Therefore, the ratio does not take into account such instances of windfall gains or losses.
  1. Commodity Businesses: The P/E ratio is based on the assumption that a company’s future earnings will be similar to its past earnings. But companies that operate in commodity-based industries, such as oil and gas or metals and mining, may have difficulty predicting their future earnings because they are heavily influenced by the fluctuations in commodity prices. For example, oil marketing companies make higher profits when the crude oil prices are low as compared to when the oil prices are high. Since crude oil prices are something which cannot be predicted, Future profits of the OMCs are also uncertain making P/E Ratio an inefficient way to value commodity businesses.
  1. Accounting for Growth: One big thing it fails to take into account is the growth potential of a company. Sure, it tells you how much the stock is being traded for in relation to its current earnings, but what about its future earnings? A company could have patents for some revolutionary technology or unexplored natural resources that could lead to considerable gains in the future, but its P/E ratio would still be based on its current earnings alone. So, while the P/E ratio can give you an idea of how the stock is valued with respect to its past earnings, it doesn’t give the whole picture when it comes to a company’s potential for growth. It’s important to consider this when evaluating a stock because even if the P/E ratio is high, it might still be worth investing in if the company has a bright future.
  1. Ignores Balance Sheet: Using the Price to Earnings ratio to value a company can be misleading, as it fails to consider a company’s financial health. While the P/E ratio is a popular and convenient tool for evaluating a stock’s value, it doesn’t take into account a company’s liabilities or assets. This can lead to a false sense of a company’s worth. Imagine you’re looking at two companies, one with a high P/E ratio, and the other with a low P/E ratio. On the surface, a company with a high P/E ratio might seem overvalued, but if it has a solid balance sheet and a lot of assets, it could actually be a great investment opportunity. On the other hand, a company with a low P/E ratio may seem like a steal, but if it has a lot of debt and few assets, it could be a risky bet. Ignoring the balance sheet when evaluating a company’s value can cause you to miss out on great investment opportunities or fall into traps.
  1. Loss-Making Companies:  One drawback of using the Price to Earnings (P/E) ratio as a metric for valuing a business is that it is not well suited for companies currently operating at a loss. The P/E ratio compares a company’s stock price to its earnings per share (EPS), and a company that has negative earnings will have an undefined or infinite P/E ratio, making it difficult to use as a benchmark for comparison with other companies or for determining whether the stock is over or undervalued. Additionally, the P/E ratio doesn’t consider the future potential of a loss-making company, which may be turning a corner and on the verge of profitability. This can make it hard for investors to identify undervalued opportunities in such companies and miss out on potential gains. In sum, the P/E ratio is not suitable for evaluating loss-making businesses. For Eg. Wealth creators such as Amazon were loss-making for the first nine years of their existence.
  1. Industry Comparisons:  Different industries have different characteristics, such as different growth rates, margins, and capital requirements. For example, in the case of metal companies, they tend to have low P/E ratios as they are often characterized by low growth, high capital requirements, and fluctuations in commodity prices. On the other hand, Fast-moving consumer goods (FMCG) companies have high P/E ratios because they have a more steady and predictable revenue stream, and they tend to have a higher growth rate. A P/E ratio that looks attractive for metal companies may not be the same for FMCG companies.
  2. Quality of Earning: Price to Earning Ratio doesn’t take into account the quality of a company’s earnings. This can be especially problematic when evaluating a company’s longevity of earnings and diversification of revenue. A company with a high P/E ratio may have high earnings, but if the majority of those earnings come from a single product or market, it may not be sustainable in the long term. On the other hand, a company with a lower P/E ratio may have lower earnings, but if those earnings are diversified and sustainable, it could be a better investment opportunity. In this scenario, the P/E ratio can give a misleading impression of a company’s true value. It’s important to consider the quality of a company’s earnings, including its longevity and diversification, when evaluating its P/E ratio to make informed investment decisions.
  3. Ignores Cash Flow: Cash-flow is an essential factor in evaluating a company’s financial health, but unfortunately, the Price to Earning ratio ignores it. This means that a company with high profits may not necessarily have a healthy cash flow. For example, a company with high profits may have high average debtor days, indicating that it takes longer for the company to collect payments from its customers. This means that even though the company is profitable, it may struggle to pay its bills and debts on time, which could lead to financial difficulties. Therefore, it is important to consider both the price-to-earnings ratio and the company’s cash flow when evaluating its financial performance.

PE ratio is easy to calculate and thereby popular but is certainly not short on misleading elements. It’s important to note that the P/E ratio should not be used as the sole measure of a company’s valuation. Investors should evaluate other valuation metrics such as Price to Book, Dividend Yield, and Price to Sales, and also consider the nature of the company, including its management, growth prospects, and financials. To make informed investment decisions, investors should use a combination of metrics and conduct thorough research on the company they are considering investing in.

How Indian Companies get Listed on Foreign Exchanges

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Introduction to Depository Receipts

Have you ever heard of depository receipts? These financial instruments allow Indian companies to raise funds in foreign countries and provide international investors with the opportunity to invest in India. Essentially, depository receipts are issued by Indian companies listed on international stock exchanges and provide investors with receipts rather than shares themselves. The holder of a depository receipt has all the same rights and benefits as a shareholder in India, including dividends and capital appreciation (the increase in an investment’s market value).

Types of Depository Receipts

There are two main types of depository receipts: American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). ADRs are traded in US dollars and are listed on US stock exchanges, while GDRs are traded in Euros and are listed on European stock exchanges like the London Stock Exchange or the Frankfurt Stock Exchange.

How Depository Receipts Work

So how do these instruments work exactly? Well, let’s say an Indian company is looking to raise funds. They would deposit their shares with a domestic custodian within the country (in this case, India). The custodian would then provide acknowledgement of the share deposit to an overseas bank, which would issue depository receipts to investors. The price of the depository receipts is based on the price of the underlying shares. After deducting any charges and expenses for issuing the receipts, the overseas depository bank would transfer the funds to the domestic custodian, which would then pass the money on to the Indian company.

Example of Depository Receipt Issuance

Let’s use an example to illustrate this process. Say ICICI Bank is looking to raise $1,100,000 through ADRs. Assume that $1 is equal to INR 80. If one share of ICICI Bank is worth INR 880, or $11, and each ADR represents ten shares, then each ADR would be worth $110. To raise $1,100,000, ICICI Bank would need to issue 10,000 ADRs.

So there you have it – that’s how Indian companies can get listed on foreign stock exchanges with the help of depository receipts! It’s a great way for companies to expand their reach and tap into new sources of funding, while also providing investors with the opportunity to get in on the action.

The Profitable Side of Loss-Making Startups: Who Benefits Even When the Company Doesn’t

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You might think that a loss-making startup is a total bust, right? But believe it or not, there are actually a bunch of people and organizations that stand to benefit from these companies, even when they’re not turning a profit. In this post, we’ll explore some of the unexpected beneficiaries of loss-making startups and how they’re able to make a profit from these companies.

Founders

You might think that the founders of a loss-making startup are out of luck when it comes to making any dough. But that’s not necessarily the case. One way for founders to still bring in some cash is by selling their stake in the company to investors. Yeah, the startup may not be making a profit yet, but if investors see potential in the long run, they might be willing to fork over some cash for a piece of the pie. And let’s not forget about salaries. Startups are known for paying their founders handsomely, especially compared to larger, more established companies. Plus, founders might be eligible for equity compensation like stock options or restricted stock units, which can pay out if the company becomes profitable or gets acquired down the line.

Early Investors

Early investors are the ones who were brave enough to invest in a startup when it was just starting out. Even though the company might not be making a profit yet, early investors can still make money by selling their stake in the company to other investors at a higher valuation. This could be to private investors, venture capitalists, or even through an IPO. Basically, early investors can still make a return on their investment even if the startup hasn’t hit profitability yet.

Customers

Startups can be a major benefit for customers, bringing in new, innovative products and services, as well as the convenience of cool technologies. And let’s not forget about all the discounts and freebies that many startups offer to attract new customers and keep them coming back. So even if the company isn’t making a profit yet, customers can still get a lot of value out of using the products and services offered by a startup.

Employees

Working at a startup can be a pretty sweet gig, even if the company isn’t making a profit yet. For one, startups tend to pay higher salaries than more established companies. And let’s not forget about the fast-paced, dynamic work environment that can be super rewarding. Plus, just being able to say you worked at a startup can be a valuable experience on its own.

Government

While the company may not be making a profit, it’s still contributing to the economy through the creation of jobs and the payment of indirect taxes. This economic activity can help stimulate the local economy and drive growth.

Marketing Agencies and Influencers

Many startups rely on these groups to promote their products and services and attract new customers. By working with a startup, marketing agencies and influencers can gain valuable experience and exposure that can help them grow their own businesses.

So there you have it, some of the top beneficiaries of a loss-making startup. While the company may not be making a profit yet, these groups can still benefit in various ways.

Vodafone Idea in Crisis: Can the Telecom Operator Stay Afloat?

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Introduction

Vodafone Idea has been having a tough time lately. Despite being a major player in the industry, the company has been unable to turn a profit and has reported a loss of more than ₹15,000 Cr in each of the last 4 financial years.

Outstanding Net Debt To make matters worse, Vodafone Idea also has significant outstanding net debt. As of 30th Sep 2022, the company had a net debt of ₹2.2 Lakh Cr, which is a significant burden for the company to carry and is likely contributing to its financial struggles.

AGR Interest Dues Conversion

In an attempt to improve its financial situation, Vodafone Idea in January 2022 decided to convert its AGR (Adjusted Gross Revenue) interest dues into equity. This would have given the government a 33% stake in the company. However, the government recently indicated that it would not go forward with the stake unless the promoters (Vodafone Plc and the Aditya Birla Group) bring in sufficient capital.

Capital Infusion Required

According to the government, Vodafone Idea needs an infusion of ₹40,000- ₹45,000 Cr to sustain the company. This is a significant amount of money, and it’s not clear where it will come from. The promoters are only willing to infuse around Rs 2,000-3,000 crore at the moment, far short of the required amount.

Lack of Funding

To make matters even more challenging for Vodafone Idea, banks have also shown an unwillingness to fund the company before the capital hike. This lack of funding is a major obstacle for the company and makes it even harder for it to stay afloat.

Conclusion

It’s hard to say for sure whether Vodafone Idea will be able to survive its current financial struggles. The company is in dire need of a capital infusion, but it’s not clear where that money will come from. Without a significant injection of funds, it seems unlikely that Vodafone Idea will be able to continue operating in the long term. Only time will tell if the company will be able to turn things around and get back on track, but for now, the future looks uncertain.

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