E-commerce in India - What's ahead?

There's a hype in recent months that eCommerce in India is getting punched and can be brought down by the mounting pressure on the eCommerce companies as they struggle to survive. Heat is on these companies as they couldn't turn profitable since they shed lots of money as operating expenses. Venture Capital firms prefer to stay away from investing in any new start-ups in this sector.

Except a handful of companies like Flipkart and Myntra, others are feeling the heat. Even these successful companies are yet to be 'profitable' even after they were successful in raising funds.

One emerging trend we could see in recent months is that eCommerce industry is in a 'consolidation' phase now. Few examples include: Babyoye.com, a baby e-store merged with Hoopos.com, another baby products seller and Buytheprice.com was bought by Tradus.com. So the question is where the market will go?

Experts think that the industry may consolidate further and get stable as more smaller and new companies would be thrown out or sucked in. But considering the internet usage by 2015, the eCommerce market in India still looks promising (it is estimated that more than 300 million people will use the internet by 2015, up from 100 million now).

The eCommerce market may be still has a long way to go in India as people are still have constraints like lower speed internet connections, fear of using credit cards online (e.g identity theft), 3G internet on mobile devices has long way to go as more and more people are still using non-smartphones, lack of efficient payment platforms (gateways), etc. The whole point here is that the younger population may be interested in doing online transactions more than the middle and aged population. This may be due to the cultural shift that's happening now. Hence we could expect that the future has lots of potential for eCommerce market in India and it may take another 5-10 years to see the real value of 'eCommerce' in India.

Falling Rupee and how it affects you?

Rupee fell for eighth day consecutively on Wednesday to finish at 52.36 against USD. So there's been hype in the market on falling Rupee against USD. We can't blame anybody for this. This is a massive outcome of various things like Eurozone crisis, instability in global equity markets, etc. Investors are looking for safe investment horizons like government bonds that could shield them against any financial vulnerability.

India's central bank, RBI, is closely watching the situation is expected to issue rupee denominated corporate bonds to overseas investors to boost the ailing rupee. Also it plans to buy around Rs. 100 billion worth government bonds to ease the pain on Rupee. The Rupee has lost around 8% against USD since April.

Though the US economy is in a bad condition, factors like Europe's failure to bail-out the countries which are in financial trouble, make the investors' confidence to ruin on Euro. All these factors pushing up the USD value against many currencies (good or bad, it's USD getting the hit!). So one could expect the Rupee to gain in Q1 2012 as the European economy is expected to get some sort of bail-outs from the governments. Once the global confidence among investors roll back, then we could say that Rupee might be back on track against USD (in the range of 45-47).

Decrease in value of the Rupee is good for the people who are working abroad and sends money to their families here. Also, the imports get dearer. There might be increase in price of goods like mobile phones, laptops, TVs, etc in coming months as the import prices would be higher. Energy companies (like oil importers) would also bear the brunt by paying more on importing oil (no surprises if the fuel prices go up!). Exports would be less valuable now and companies that export goods to abroad could expect their top line revenues to come down. Many Indian IT companies that weren't prepared for this free fall of rupee would certainly face the heat in this quarter.

Will Kingfisher Airlines survive?

Everybody is talking about the financial position of Kingfisher Airlines, the second largest carrier in India with a market share of around 20%. Speaking only based on the financial numbers, yes, Kingfisher is in a dire situation. But before arriving at any conclusion, let's review about its recent quarterly results (three months ended Sep 30, 2011).

1. Revenues decreased by 19% Q-o-Q, may be an overall effect in the industry
2. Fuel expenses went up to a new level of 53% of revenues
3. Employee costs also went up by 5% Q-o-Q, constituting around 12% of revenues
4. Both Fuel and Employee expenses accounted for 65% of total revenues in this quarter, should really be a concern for Kingfisher
5. Cash at bank was about $44M at the end of the quarter, around more than 21% of short term loans payable within a year (as of March 31, 2011)
6. Total secured and unsecured loans as of March 31 ~ $1.4 billion
7. Kingfisher announced in its earnings call that it may require only around $100-$150M to meet short term needs (working capital)
8. There are some flip side as well -

- passenger load factor was down to 77%, compared to 82% in the same period last year
- reported a EBITDAR loss of around $25M, since two years
- reported a net loss of around $94M

Interesting to note is that around 75% of revenues were from domestic operations. So, increase in fuel costs in India would obviously have its impact on the margins of Kingfisher. Jet fuel costs are surcharged at a higher rate than many other countries, it's around 50-60%, which made the airliners to shed more money on fuels in India. This was the biggest cause for this financial mess at Kingfisher, followed by the increasing staff costs.

Fuel expenses were 'higher' in the previous quarter (Q1 2012), which Kingfisher was able to overcome due to its increase in revenues in that quarter. There were factors that made Kingfisher hard times this quarter - increasing fuel costs, employee costs and decreasing value of rupee against dollar.

Though the company is making all measures to cut costs like shutting operations in few loss making routes, Kingfisher has no other option.

All the company needs is an infusion of around $100-150M to save its day-to-day operations running. I think it can made it easily by various measures like selling more equities or converting debts to equities to sell stakes to the creditors, etc. Also the talks have already been through with various banks in India.

All the airliners in India are running in losses and this mounting debt may not be a 'significant' problem for Kingfisher and I hope the company would come up from the crisis and this would be a lesson for all the operators in India to tackle their working capital efficiently in order to maintain day-to-day business operations without any financial hitches.

Indian Stock Market - Back on track?

Indian stock market benchmark index, Sensex, is doing better than most of the developed economies' stock markets. Sensex faced some sluggish movements after the budget, but now the market seems to be bouncing back.

There are lot of small and mid cap stocks in Sensex which are still undervalued. Here are some of the stocks that gave more than 100% returns in last six months:

1. Crompton Greaves

2. Essar Shipping

3. GVK Power

4. Ispat Industries

5. Jaiprakash Hydro

6. Steel Authority of India (SAIL)

7. Sujana Towers

8. Tanla Solutions

Stocks that are doubled or tripled in last six months:

1. Punj Lloyd (217% increase)

2. Wellspun Gujarat (311% increase)

Wellspun Gujarat - a value stock?

Wellspun Gujarat, a leading manufacturer of steel pipes in India, has announced a very attractive increase in net profit for the quarter ended June 30, 2009. Profit was up by 94% to Rs.138 crore.

Current stock price of Wellspun is around Rs.205.

Moreover Wellspun recently got an order worth Rs.960 crore. Backed by these strong fundamentals and healthy outlook for next financial year, Wellspun Gujarat' seems to be a good pick.

Sensex - Outlook

Supported by a strong Q1 results by most of the Indian companies and strong growth in FY2009-10, Sensex, is expected to be in the range of 16000-17000 in Q3 2009.

Sensex is bouncing back!

After some post-budget trembling, the Sensex is bouncing back today. Index is already up by 406 points, expected to close above 13,800 points. This shows that investors again put in confidence in Indian budget and its aggressive growth plans. Well, if the economy grows at more than 7%, then India will be the second fastest growing economy in the world, after China.

I would like to mention few stocks every week in this blog which has some 'value'.

Here's are the stocks to watch for this week:

1. Page Industries
2. ITC (a good stock that gives nominal returns even in bad times)