Tax Query: Is tax audit needed for claiming loss from F&O trading?

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Please let me know whether tax audit u/s. 44AB read with section 44AD is applicable for A.Y. 2021-22, for claiming loss from futures & options (derivatives) business of ₹1 lakh on turnover of ₹5 lakh and interest income of ₹7 lakh? Also, how to carry forward unabsorbed loss under ‘income from house property (self occupied)’ where interest on home loan exceeds ₹2 lakh as the system ignores excess interest while uploading ITR-3?

Tina B

For the purpose of analysing the applicability of tax audit requirement u/s 44AB of the Income-tax Act, 1961 (‘the Act’), the turnover is required to be determined. As per the guidance note on tax audit issued by the Institute of Chartered Accountant of India, turnover in case of dealing in futures and options shall include the following:

a) Total of favourable and unfavourable differences

b) Premium received on sale of options

c) In respect of any reverse trades entered, the difference thereon

As per the provisions of Section 44AB every person, carrying on business shall be required to get his accounts audited for such financial year by a Chartered Accountant before the specified date, if total sales, turnover or gross receipts (as applicable), in business exceed ₹1 crore in any previous year. The said limit of ₹1 crore is substituted with ₹10 crore in case the cash receipts do not exceed 5 per cent of the total sale/ turnover/ gross receipts and the cash expenditure does not exceed 5 per cent of the total payments.

As per the provisions of Section 44AD , in the case of an eligible assessee engaged in an eligible business (turnover not exceeding ₹2 crore and not into the business of plying, hiring or leasing goods carriages), a sum equal to 8 per cent (6 per cent in respect of amount received by way of A/c payee cheque/ A/c payee bank draft/ electronic clearing system) or a sum higher than the aforesaid sum shall be deemed to be the profits and gains of such business chargeable to tax under the head “profits and gains of business or profession”.

As per the guidance available on portal of income tax department, a person can declare income at lower rate (i.e. at less than 6 per cent or 8 per cent), however, if he does so and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB. In the instant case, since the income (being loss) from Future & Options is less than 8 per cent / 6 per cent and the total income chargeable to tax is exceeding the maximum amount not chargeable to tax, you would be required to be audited u/s 44AB of the Act .

Carry forward of unabsorbed loss on account of interest on housing loan: As per the provisions of Section 24(b), deduction on account of interest on housing loan in case of a self-occupied property is restricted to ₹2 lakh and hence loss under house property for a self- occupied property cannot exceed ₹2 lakh. Accordingly, any interest paid in excess of ₹2 lakh is neither eligible to be set-off against other heads of income nor allowed to be carried forward for future assessment years. Hence in the instant case, interest paid in excess of ₹2 lakh, shall not be allowed to be carried forward to the future assessment years.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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Know about sub limits in health insurance policy

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Covid-19 has made people aware that health emergencies can strike without warning. Further, with sky-rocketing medical costs, having adequate health insurance has become a necessity. Among the various factors that you must pay attention to while choosing health insurance, is sub-limits.

What they are

Sub-limit in health insurance refers to a monetary cap by an insurer on expenses against treatment of diseases/ illness, room rent and post-hospitalization and pre-planned medical procedure related expenditures. This means that the insurance company will only bear expenses up to a predetermined limit. Anything beyond that will have to be borne by the policyholder.

The sub-limit, however, varies across claims. It may be a certain percentage of the sum insured, or up to a certain specific amount. For instance, generally ICU fees and hospital room rent caps are typically 2% and 1%, respectively of the total sum assured. Further, many health insurers allow you to opt out of sub-limits for an additional premium. You can choose between the two options depending on your budget.

Sub limit types

Disease-specific: Most insurers have sub-limits on pre-planned medical treatments, in the form of a defined cost for procedures such as cataract removal, knee ligament reconstruction, kidney stone removal, tonsils, and sinus removal. The list of ailments and the treatment cost cap differs from one insurer to the next. The treatment sub-limit is not related to the sum assured, which means that even if a policyholder has a high amount assured, the sub-limit clause in the policy will prevent him from claiming all of his treatment expenses. For instance, if your policy has a 50% sub-limit clause on a certain medical procedure and your total sum insured is ₹5 lakh, you will be unable to claim more than ₹2.5 lakh for that treatment because of the sub-limit clause.

Room rent: This refers to the maximum rent or room category you are entitled to depending on your health insurance coverage. This is usually 1% of your entire insured. For instance, under a ₹10 lakh policy with a 1% sub-limit on room rent, the insurer will approve a hospital room with a maximum rent of ₹10,000 per day. If the room rent exceeds the set sub-limit, the policyholder will have to bear the rest of the cost.

There will be a cap on associated services such as physician consultation fees, anaesthetists’ charges, diagnostic tests too, because various hospital expenses are tied to the type of room one chooses and as per the sub-limit applicable on room rent.

Post-hospitalisation: In many circumstances, policyholders will be required to stay at home under medical supervision for a certain period after treatment. Many insurers cover post-hospitalisation charges with sub-limits, requiring policyholders to pay a portion of the cost.

When compared to a policy with sub-limits, health insurance policies with no sub-limits will have a higher premium. If you have a sub-limit cover, make sure that your medical expenses do not exceed the threshold level. So, before you buy a new health policy or renew an existing one, be sure to get one that covers you adequately.

The writer is Head- Health Insurance, Policybazaar.com

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All you wanted to know about survival benefit

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A call by an insurance agent left Prakash with some unanswered questions related to survival benefit. He posed them to his trusted financial advisor, Sangeetha.

Prakash: An agent called me about a child insurance plan. While pitching the product, he mentioned that survival benefit will be paid as a certain percentage of sum assured. Shouldn’t the survival benefit be larger?

Sangeetha: Survival benefit is similar to maturity benefit. In plans that offer survival benefit, it is a risk-free sum generally paid out as a share of sum assured, at intervals. Typically, 20-30 per cent.

Prakash: Okay. So, survival benefit and maturity benefit are two different things?

Sangeetha: Yes. Some people use the two terms interchangeably, adding to the confusion. Maturity benefit is paid out to the policyholder at the end of the policy term, when the policy matures. In case of survival benefit, the payment happens at the end of the premium payment term. There are many policies where the policy term is 20 years but premium payment is for 15 years. In these cases, the survival benefit may be paid after 15 years in phases, and not after 20 years.

Prakash: Which policies offer survival benefits?

Sangeetha: Savings plans can offer survival benefits, but not all of them do. It depends on the specific plan.

Prakash: Okay. The agent was pitching a money-back policy that pays out survival benefits at regular intervals.

Sangeetha: Money-back is a savings plan. Generally, payouts start after the premium payment term ends, and continue at regular intervals for a specific period.

Prakash: So, can I defer survival benefit?

Sangeetha: Some policies offer that option. In that case, the policyholder can get increased survival benefit i.e. deferred original survival benefit along with interest. If the increased survival benefit is not taken by the policyholder during the currency of the policy, it is paid out later along with maturity benefit.

Prakash: My friend was saying there is one policy that pays 103 per cent of premium as survival benefit. Is this possible?

Sangeetha: I know what you are referring to. But its not 103 per cent of all premiums paid. It is 103 per cent of one annual premium as survival benefit!

Prakash: Smart use of words! Any tax sop on survival benefit received?

Sangeetha: Like maturity benefit, survival benefit is exempt from income tax under Section 10 (10D).

Prakash: Cool. Now that I know how survival benefits work, I will keep an eye out for this feature.

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5 changes in the ombudsman scheme

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The RBI recently launched an integrated ombudsman to strengthen the existing grievance redressal mechanism for consumers of banks, NBFCs and payment system operators. Here are five things that have changed for consumers relating to the ombudsman scheme.

Single-window coverage

Earlier customers had to approach either the Banking Ombudsman, Ombudsman for NBFCs, or the Ombudsman for Digital Transactions, depending upon who they wished to raise complaints against — whether they were grieved by a bank, NBFC or Non-bank System Participants (such as issuers of Pre-Paid Instruments). But now under the integrated ombudsman scheme, the earlier three ombudsman schemes have been unified into one.

Customers can now complain against any covered financial institution on the portal (https://cms.rbi.org.in), or email to (crpc@rbi.org.in) or send physical complaints to Centralised Receipt and Processing Centre of the RBI at Chandigarh, in a prescribed format. Additionally, a contact centre with a toll-free number – 14448 (9:30 am to 5:15 pm) – is also being operationalized in Hindi, English and in eight regional languages to begin with and will be expanded to cover other Indian languages in due course. The contact centre will provide information or clarifications regarding the alternate grievance redress mechanism of RBI and guide customers in filing a complaint.

Besides Non-Scheduled Primary Co-operative Banks with a deposit size of ₹50 crore and above have been added to the ambit of the integrated ombudsman now. The earlier schemes covered only all scheduled commercial banks, regional rural banks and scheduled primary co-operative banks (under the Banking ombudsman Scheme), all deposit taking NBFCs and non-deposit taking NBFCs with an asset size of ₹100 crore and above (under the Ombudsman Scheme for NBFCs) and non-bank system participants regulated by the RBI (under the Ombudsman for Digital Transactions).

Uniform jurisdiction

Hitherto customers were required to file their complaints under the correct scheme and with the correct ombudsman’s office, based on the territorial jurisdiction with reference to the branch of the entity being complained against, failing which the complaint would be rejected. Now apart, from integrating the schemes across regulated entities, the RBI has also done away with the jurisdiction of each ombudsman office.

The receipt of all complaints and initial processing shall be centralized at the office at Chandigarh, to impart efficiency in the process. The integrated ombudsman shall from now on act as a single point of contact for the aggrieved customer, compared to the erstwhile territorial and scheme based jurisdiction which was a usual ground for rejection of claims.

Wider grounds of complaint

Earlier the separate ombudsman schemes specified certain deficiencies in services, on which customers could lodge complaints with the ombudsman. With limited grounds of complaints specified, one could not complain against any grievance not listed under the erstwhile schemes. Now the integrated scheme defines ‘deficiency in service’ as the ground for filing a complaint, with a specified list of exclusions ( such as dispute between regulated entities or one involving an employer- employee relationship, or relating to any service not within the purview of the RBI). Henceforth, complaints would no longer be rejected simply on account of not being covered under the grounds listed in the scheme. Customers can now through the integrated scheme, seek redressal for any deficiency in service, if the same is not resolved to the satisfaction of the customer or not replied to, within a period of 30 days by the regulated entity.

No differential compensation

The erstwhile ombudsman schemes had specified limits on the compensation provided to the complainant. The Award under the schemes were limited to the amount arising directly out of the act or omission of the regulated entity or ₹20 lakh (in the case of banks or non-bank system participant), whichever is lower. The said limit was lower at ₹10 lakh in the case of the covered NBFCs, under the Ombudsman Scheme for NBFCs.

This differential treatment has now been streamlined under the integrated scheme. Now on, for any consequential loss suffered by the complainant, the Ombudsman shall have the power to provide a compensation up to ₹20 lakh. That apart, up to ₹1 lakh can also be awarded for the loss of the complainant’s time, expenses incurred and for harassment/mental anguish suffered by the complainant, as was available in the erstwhile schemes.

Appeal

The ombudsman schemes permitted customers to appeal against the award of an ombudsman or for the rejection of a complaint, to the appellate authority within 30 days. The appellate authority was vested with the Deputy Governor of the RBI in charge of the department implementing the erstwhile schemes.

Now under the integrated scheme, customers can file the appeal using the same portal. That apart, from now on the Executive Director in-Charge of the department of the RBI administering the Scheme, shall be the Appellate Authority.

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Should you invest in state govt. NBFC deposits?

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Investing in fixed deposits of state government-owned entities may seem like shooting two birds – attractive returns and solid safety – with one stone. But it may not be so.

FDs from non-banking financial companies (NBFCs) such as the Tamil Nadu Power Finance and Infrastructure Development Corp. (TN Power Finance), the Tamilnadu Transport Development Finance Corp. (TDFC) and the Kerala Transport Development Finance Corp. (KTDFC) seem to be popular with investors. As of March 2020, TN Power Finance and TDFC had public deposits worth ₹5,900 crore and ₹794 crore, respectively.

What’s good, what’s not

Both TN Power Finance and TDFC offer an attractive 7 per cent (1-year) and 7.25 per cent (2-year) p.a. on their cumulative FDs. KTDFC offers 6 per cent p.a. on its same tenure deposits.

Despite their implicit government backing, the weak financials of these NBFCs as reflected in their subpar credit ratings do not inspire much confidence. The absence of DICGC’s (Deposit Insurance and Credit Guarantee Corporation) cover for such deposits, too makes them a risky bet.

Past credit events have taught us that even the highest AAA ratings must be taken with a pinch of salt. That means, one must be even more wary of lower-rated instruments. Both the TN Power Finance and TDFC FDs are rated MA-(Stable) by ICRA. Even this rating is supported by “ownership and the expected financial support from GoTN”.

TN Power Finance: According to an ICRA report dated Apr 2021, the NBFC provides loans only to the Tamil Nadu Generation and Distribution Corp. or TANGEDCO. This exposes it to concentration risk. As per the report, while the company’s net profitability improved in FY2020 and 9M 2021 compared to FY19 thanks to lower cost of deposits, the sustainability of this will depend on how much pricing flexibility it has with TANGEDCO. TN Power Finance reported net profit of ₹505 crore on an asset base of ₹39,488 crore in FY2020. Based on the latest available numbers, the company’s CRAR (capital to risk weighted assets ratio) was around 12 per cent as of March-end 2020. This must be raised to 15 per cent by March 2022 as directed by the RBI and may require equity infusions from the government as in the past.

TDFC: Based on another ICRA report dated Nov 2020, the NBFC provides loans to state transport undertakings (STUs) and had a CRAR of 15.3 per cent as of March-end 2020. This was a significant improvement from a year ago thanks to the government’s equity infusions. However, with Covid impacting the operations of STUs, TDFC’s capital adequacy could come under pressure. TDFC reported net profit of Rs. 12 crore on an asset base of ₹9,329 crore in FY2020.

Interest payment on deposits (public and others) accounted for 75 per cent and 95 per cent of TN Power Finance’s and TDFCs’ FY2020 revenues.

We were unable to find any financial statements for KTDFC or any credit ratings for its FDs. Attempts to access its website itself were not without trouble – with access being denied due to the website apparently being infected with malware! You can, however, search for ‘KTDFC interest rates’ to gain access to the website.

Safer avenues

Deposits from NBFCs unlike those from banks (including small finance banks) do not enjoy DICGC’ insurance cover. Under this, each bank depositor is insured for a deposit amount of up to ₹5 lakh to be disbursed in a time-bound manner in case a bank gets liquidated or is put under a moratorium. While investors may draw comfort from the implicit government guarantee for state-owned NBFCs, in the absence of any formal time-bound protection, deposit refunds in case of any financial trouble may get delayed.

FDs from financially stronger NBFCs and small finance banks (SFB) can be a safer alternative. Take for example, the two-year cumulative FD from Bajaj Finance that offers 6.10 per cent p.a. The deposits enjoy the highest rating – CRISIL’s FAAA/Stable and ICRA’s MAAA (stable). An NBFC with a diversified loan book, Bajaj Finance’s CRAR of 27.7 per cent is well above the mandated 15 per cent, providing adequate buffer against any future bad loans. Another option can be Equitas SFB’s 2 years 1 day deposit that offers 6 per cent p.a. The SFB has a well-diversified loan portfolio and at a CRAR of 22.2 per cent has a strong capital base.

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2 Best 5-Star Rated Dynamic Asset Allocation Funds For SIP In 2021

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Should I start SIP In Dynamic Asset Allocation funds?

Based on the market movements, Dynamic asset allocation funds, also known as balanced advantage funds, actively manage their allocation towards equity and debt stocks. As a result, investing in these funds can give you a long-term wealth potential as well as a cushion against the downside in case of falling equity markets.

According to the performance report of ICRA Analytics Ltd, Dynamic Asset Allocation Funds marked a three-month return of 5.51 percent, a six-month return of 10.14 percent, a one-year return of 26.1 percent, a three-year return of 11.37 percent, a five-year return of 9.74 percent, and a ten-year return of 12.15 percent as of September 30, 2021.

With a minimal risk exposure, these returns can be a decent approach for investors in a falling market scenario to start SIP in Dynamic asset allocation funds with an investment horizon of at least 3 years or more.

According to the data of ICRA Analytics Ltd, In September 2021, mutual fund contributions under the Systematic Investment Plan (SIP) surpassed Rs 10,000 for the first time, totaling Rs 10,351 crore, rising 13% from June 2021. SIP AUM climbed by 8% in September 2021 after reaching the Rs. 5 lakh crore milestone in July 2021.

SIP AUM was Rs. 5.45 lakh crore at the end of the quarter, rising roughly 13% over the previous quarter. It accounted for 15% of total industry assets, while SIP accounts increased by 12% to 4.49 crore. Hence, we would like to suggest our readers stick to their SIPs or start SIP in Dynamic Asset Allocation Funds to welcome the takeaways into their portfolio like the power of compounding, rupee cost averaging, and low initial investment.

Edelweiss Balanced Advantage Fund Direct-Growth

Edelweiss Balanced Advantage Fund Direct-Growth

Edelweiss Balanced Advantage Fund Direct-Growth returns of the last 1-year are 29.10%. Since launch, it has delivered 13.65% average annual returns, according to the data of the fund house as of 18 Nov 2021. The equity side of the fund is predominantly engaged in the financial, technology, energy, fast-moving consumer goods, and automobile sectors. ICICI Bank Ltd., Reliance Industries Ltd – PPE, National Bank For Agriculture & Rural Development, Infosys Ltd., and Nifty 50 are the fund’s top five holdings.

The fund has a 0.45 percent expense ratio, which is lower than most other funds in the same category. The fund now has a 59.90 percent equity allocation and a 20.09 percent debt exposure. As of 30 September 2021, Edelweiss Balanced Advantage Fund Direct-Growth has Rs 6,331 crores in assets under management (AUM), and the fund’s NAV was 39.35 crores as of 18 Nov 2021. Value Research has given the fund a 5-star rating, and you may start investing in it with Rs 500 SIP.

Performance as on 18 Nov 2021 Scheme Scheme Benchmark CRISIL Hybrid 50+50 – Moderate Index Additional Benchmark NIFTY 50 – TRI
Period Return (CAGR) Return (CAGR) Return (CAGR)
1 Year 29.10% 23.56% 38.88%
3 Year 18.83% 16.09% 19.82%
5 Year 16.18% 13.59% 18.52%
Since Inception – Existing Plan 13.65% 9.41% 14.17%
Source: edelweissmf.com

Kotak Balanced Advantage Fund Direct Growth

Kotak Balanced Advantage Fund Direct Growth

Kotak Balanced Advantage Fund Direct has a one-year return rate of 19.96 percent. According to the date of the fund house as of 18.11.2021, it has generated 13.26% average annual returns since its inception. The fund has its equity allocation across the Financial, Metals, Services, Technology, Energy sectors. The fund’s top five holdings are GOI, ICICI Bank Ltd., Adani Ports and Special Economic Zone Ltd., and Infosys Ltd. The fund has a 0.45 percent expense ratio, which is lower than most other Dynamic Asset Allocation funds.

The fund now has a 78.73 percent equity allocation and a 21.27 percent debt exposure. Kotak Balanced Advantage Fund Direct-Growth had Rs 11,813.44 crores in assets under management (AUM) as of 30 September 2021, and the fund’s NAV was Rs 15.07 crores as of 18 November 2021. The fund has a 5-star rating from Value Research, and you can start SIP with Rs 500.

Tenors Since Inception Last 5 Year Last 3 Years Last 1 Year
Kotak Balanced Advantage Fund – Direct (G) 13.26% 15.02% 19.96%
Nifty 50 Hybrid Composite Debt 50:50 Index 13.49% 13.43% 15.69% 20.87%
Nifty 50 TRI 15.87% 18.54% 19.88% 38.88%
Performance as of 18.11.2021. Source: kotakmf.com

Disclaimer

Disclaimer

The views and investment tips expressed by authors or employees of Greynium Information Technologies, should not be construed as investment advice to buy or sell stocks, gold, currency, or other commodities. Investors should certainly not take any trading and investment decision based only on information discussed on GoodReturns.in We are not a qualified financial advisor and any information herein is not investment advice. It is informational in nature. All readers and investors should note that neither Greynium nor the author of the articles, would be responsible for any decision taken based on these articles. Please consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates, and authors do not accept culpability for losses and/or damages arising based on information in GoodReturns.in



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Crypto transactions should be recognised as asset class, regulated centrally: RSS body

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The RSS-affiliated Swadeshi Jagaran Manch has said that the government should bring a law to recognise cryptocurrency transactions as an “asset class” and regulate it.

Domestic servers

Swadeshi Jagaran Manch (SJM) co-convenor Ashwani Mahajan suggested that the government should also ensure that the data and hardware used in mining, processing, and transacting of the cryptocurrencies stay at domestic servers.

It will help the government unearth illicit transactions and take action against them, he added.

Also see: Barcelona, Manchester City drop club crypto sponsors amid concerns

“At present, anybody from anywhere in the world can invest in it through private exchanges run by private entities. And the worst is, cryptocurrencies are not controlled by any central authority,” he said when asked for his views on cryptocurrencies.

Encrypted transactions

There is no mechanism in place to see how the encrypted transactions are being made through private exchanges, who are the ones investing in it and what the investors are doing with them, he added.

“Legislation is needed to regulate cryptocurrencies and to recognise transactions done with it as asset class. This will help develop a better understanding of the transactions for purposes of taxation and national security,” Mahajan said.

‘No intrinsic value’

He rejected the comparison of crypto assets with commodities like gold, calling it “unfounded”, saying cryptos have no “intrinsic value”.

Private virtual currencies are at “substantial odds” with the concept of money, he said, emphasising that “no sovereign” should allow private agencies to issue legal tenders or anything equivalent to it.

Also see: Democracies need to work together for safe cryptocurrency operations: PM

“Most of the bitcoins are mined in the dark web and we don’t know who is the issuer. The monies do not represent any person’s debt or liabilities. This crypto is not money. Certainly, it cannot be a currency,” he said.

Globally, there are instances where bitcoins were used on the dark web to pay for guns, drugs and other illicit purposes, he added.

Need for larger discussions

Amid concerns over cryptocurrency, Prime Minister Narendra Modi had chaired a meeting on November 13 to deliberate on the way forward.

On November 15, a parliamentary panel, chaired by BJP leader Jayant Sinha, also discussed the pros and cons of crypto-finance with various stakeholders.

Mahajan appreciated the move but said there is a need to hold “a larger discussion” on the issue, involving all stakeholders.

“The government is talking to some key stakeholders, yet a larger discussion is needed. There is a need for a national debate and larger discussion on the subject of cryptocurrencies,” he said.

Stratospheric rise

Originally started with Bitcoin in 2008, there are currently hundreds of cryptocurrencies being traded on private exchanges internationally, including India.

Also see: All that is dubious about crypto currencies

Due to its stratospheric rise, Bitcoin is considered the best investment of the last decade. Originally priced at around 10 cent, the coin was being traded at over $60,000 till last week.

Solana and Ethereum are two other leading coins in the market with multiple use cases.

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Buy This Small Cap Textile Stock For A Gain of 23% In 6 Months: HDFC Securities

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Q2FY22 results of Siyaram Silk Mills Ltd according to HDFC Securities

  • SSML in Q2FY22 reported strong performance. Overall revenues stood at Rs. 480Cr which grew by 1.76x/1.06x on a YoY/QoQ basis. Segment-wise, branded Fabric, garments and yarn revenue for the quarter stood 80/16/4% respectively.
  • Fabric segment reported a volume of 23lk Mtrs which grew 70% on sequential basis while realization stood at Rs. 164/ mtr on QoQ basis registering a growth of 23% due to lower discounting and improved product mix.
  • Garments segment volumes for the quarter stood at 12lk pcs up 97% on QoQ basis while realization stood at Rs. 632 – up 20% on a QoQ basis while Yarn segment volume for the quarter stood at 6lk MT – up 6% on a QoQ basis while realization stood at Rs. 299.5/MT – up 8% on a QoQ basis.
  • EBITDA for the quarter stood at Rs.85 Cr v/s a loss of Rs. 6Cr in Q2FY21 while on a sequential basis EBITDA grew by 1.92x. SSML reported best ever operating performance for the quarter whereby it clocked highest ever quarterly EBITDA margin of 17.6% v/s 12.4% in Q1FY22.
  • Consequently, PAT for the quarter stood at Rs. 52Cr v/s a loss of Rs. 14Cr in Q2FY22. Sequentially it reported a growth of 3x in PAT over Q1FY22.

HDFC Securities Ltd’s take on SSML

HDFC Securities Ltd’s take on SSML

The brokerage in its research report has said that “Siyaram Silk Mills Ltd (SSML) has one of the most prudent capital allocation track record in the textile and apparel space in India. Despite the covid-19 pandemic-related turmoil, it operated at a Net D/E of 0.1x as of FY21. It has been in a constant endeavor to establish itself as an asset light and a pure branded fabric and apparel player in the highly commoditized and working capital intensive textile industry. SSML is one of the largest poly-viscose blended fabric players in India. Its portfolio of products include suiting fabrics, shirting fabrics, casual and formal apparels and home furnishing. SSML has registered a smart recovery in earnings post the 2nd covid-19 wave whereby it reported best ever quarterly performance in Q2FY22.”

HDFC Securities has further clarified that “In Q2FY22, it reported a PAT of Rs. 52Cr which was mainly driven by strong operating leverage and its lean cost structure. SSML has positioned its products mainly in the mid-market whereby it competes directly with unorganized and regional fabric players. Its strong balance sheet, deep penetration with a consistent and focused approach toward brand building were the key growth drivers for the company. Over FY10-20, it had undergone a cumulative investment of ~Rs. 600Cr behind A&P activities which accounts for 4% of its cumulative revenues. Key demand drivers like social gatherings, marriage season and festivals are likely to play out in H2FY22.”

Buy Siyaram Silk Mills with a target price of Rs 559

Buy Siyaram Silk Mills with a target price of Rs 559

The brokerage has claimed in its research report that “In our view, SSML’srevenue and EBITDA are likely to record a growth of 23% and 73% CAGR over FY21-24E while PAT for FY24E is likely to reach Rs. 183Cr v/s Rs. 3.5Cr in FY21 and Rs.69Cr in FY20. Along with this, we expect the company to benefit from strong operating leverage and generate consistent FCF with improvement in working capital and ROCE from 7% in FY20 to 19% by FY24E”.

HDFC Securities has reported in its research report that “Given the healthy growth outlook and a strong set of numbers in Q2FY22, we reiterate our positive view on the stock and expect the stock to further get re-rated. Consequently, we have now revised earnings and increased the target price for SSML. We feel investors can buy the stock in the band of Rs. 460-465 and further add-on dips at Rs. 410 for a base case fair value of Rs. 503 (13.5x Sept FY23E) and bull case fair value of Rs. 559 (15x Sept FY23E) for a time horizon of 2 quarters.”

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.



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Stocks To Buy: Buy This Tractor Major Stock For 22% Upside In 1 Year, Says ICICI Direct

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About Escorts:

Escorts is the country’s fourth largest tractor manufacturing entity with a market share of 11.3 percent. The company also caters to the domestic railways and construction equipment segment. Talking about its sales mix in FY21, tractors account for the major sales component.

Kubota Escorts transaction:

Kubota Escorts transaction:

The company will issue additional equity through the preferential allotment route to the Japanese tractor major Kubota Corporation for a price of Rs. 2000 per share with inflow of approximately Rs. 1873 crore.

In the transaction, Kubota’s shareholding in Escorts shall increase to 16.4 percent from 10 percent and the company will become a joint promoter of Escorts.

There is a proposal to change company name to Escorts Kubota Ltd.

All the current JV’s are planned to be merged.

Nanda family will retain its stake and Mr. Nikhil Nanda will continue to be the CMD.

Brokerage's advice on Escorts to investors

Brokerage’s advice on Escorts to investors

The scrip in the past 5 years has zoomed 6 times from levels of around Rs. 300 in November 2016, significantly outperforming Nifty Auto index. “We retain B U Y on Escorts with Kubota now a co-promoter with expectations of enhanced product offerings and increased global sourcing from India”, says the brokerage.

Target Price and Valuation: The brokerage values Escorts at revised SOTP-based TP of Rs. 2,200 (23x P/E on core FY23E EPS, 15% discount on treasury shares; previous TP- Rs. 1,900 )

Key triggers for future price performance:

Key triggers for future price performance:

• New product launches in the farm mechanisation side (ex-tractors).

• Optimum utilisation of surplus cash on b/s, currently nearly at Rs. 5,000 crore.

• Expect 13% tractor revenue CAGR over FY21-23E.

• Construction equipment, railways growth to be faster amid expected pickup in economic activity and positive outlook for user segments

Alternate Stock Idea:

Alternate Stock Idea:

Other than Escorts, the brokerage house in its auto OEM coverage is bullish on M&M. The company recommends buying the stock of M&M for a target price of Rs. 1125, potential upside of 21.75% from the last traded price of Rs. 923.7 per share. The brokerage highlights positives of M&M as prudent capital allocation, UV differentiation & EV proactiveness.

Disclaimer:

Disclaimer:

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.



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