In the last part of our three-part series, we are focusing on those companies wherein both FII/FPI and DII have increased their stake
17-May-2019 •Danish Khanna
Market volatility continues against the backdrop of the ongoing US-China trade war as well as general elections in India. In such a situation, investors often get confused about where to park their money, which is quite normal.
Given these, we have come up with the third part of our FIIs and DIIs series. In this part, we are focusing on those companies wherein both FII/FPI and DII have increased their stake by more than three per cent during the period between September 2018 and March 2019. Although our list has included five companies, we have not detailed two companies - Chalet Hotels and Metropolis Healthcare. This is because these two companies have recently come out with their public issues in the market and FIIs and DIIs have bought their stake for the first time.
The three companies are as follows:
Balrampur Chini Mills Ltd
With 76, 500 tonnes of sugar crushing capacity per day, it is the second largest sugar manufacturing company in India. It is also involved in ancillary businesses of ethanol manufacturing and cogeneration of electricity.
The sugar industry is highly cyclical, as sugar production is largely dependent on weather. Nevertheless, India's sugar production in 2017-18 was 32 million tonnes as compared to 20.2 million tonnes in 2016-17, depicting a rise of 60 per cent. On the other hand, sugar production is concentrated, owing to high establishment costs. Besides, in this sector, building a relationship with farmers - the main raw material suppliers - is not only important, but difficult as well. All these factors often act as significant entry barriers to new entrants in the sector.
In terms of the company's financials, it significantly reduced its debt from Rs 1572 crore in FY14 to Rs 989 crore in FY18. It also depicts an almost 50 per cent drop in its finance costs and a consistent rise of its ROCE during the same period. In addition, the company reported a steady rise in its sales at an annual rate of 10 per cent during the period between FY14 and FY18. It is currently trading at 13 times PE, which is in line with its peers.
Power Finance Corporation
Set up in 1986, this central public-sector enterprise enjoys the prestigious schedule-A Navratna status. It is involved in providing financing and investment for the power generation and associated sectors. Its portfolio consists of loans mainly to power projects like project term loans, equipment lease financing, short-term loans and consultancy services.
Currently, it is the largest Non-Banking Financial corporation by net worth. As of December 2018, its gross loan assets stood at 2,98,128 crores. Out of this, the majority of the disbursements were towards power generation (~ 72 per cent of total). Other disbursements were towards Distribution (~ 19 per cent), Transmission (~ 8 per cent) and rest to others.
Recently, the company has acquired all of the government's stake in REC, totalling to 52.6 per cent for 14,500 crores. This acquisition has been significant for the government to meet its disinvestment target of Rs 80,000 crore for FY19.
Incorporated in 1969, REC is involved in developing power infrastructure and financing projects for rural electrification in India. The company is under the Ministry of Power, the Government of India and holds the prestigious Navratna status.
In addition to taking care of the value chain of power infrastructure, it is also involved in providing consultancy and advisory services related to power distribution and transmission projects. It provides funding to both conventional and renewable sources of energy projects for power generation.
At present, its robust loan book stands at Rs 2,69,170 crores. Out of this, financing towards power generation projects accounts for around 44 per cent, transmission 18.5 per cent, distribution 32.7 per cent and renewables account for the rest.
As mentioned above, the acquisition of REC by Power Finance Corporation may result in the merger of the two entities, which will make the combined entity the second largest government-owned financial company based on market capitalisation after the State Bank of India (SBI).
Disclosure: The intent of the article is not to recommend any specific stocks. If you wish to invest in any of the above-mentioned securities, please do thorough research.