CIBIL Report - what it contains

In your credit report, here are a few areas lenders focus on.

Payment History: This appears in the Account(s) section of your CIBIL credit report.

There are two parts to this information: the Days Past Due (DPD), and the month and year of payment. The DPD indicates how many days the payment is late that month. Obviously, anything other than "000" is considered negative.

Up to 36 months of this payment history (with the most recent month displayed first) is provided in this section.

Current Balances: Also appearing in the Account(s) section of your credit report, the current balances on various loans indicate the depth of your debt. The sum of your current balances helps determine your strength to take on additional debt in relation to your current income.

Naturally, lower the current balance, better the chance of your loan getting approved.

New credit facilities: If a loan provider observes that you have recently been sanctioned a number of new credit facilities, it would mean that your monthly outflow in terms of loan repayments is likely to have increased. Hence, it may be viewed negatively.

Number of new enquiries: If you have applied for a number of loans in the recent past, the chances of your loan getting approved are likely to suffer. Simply because such credit behaviour indicates that you are 'credit hungry' and are in urgent need of money.

By understanding how banks think, you can not only complete a lending application that will showcase your strengths better but you can also pre-qualify for loans by lenders based on their lending criteria.

This will reduce the number of attempts you make to qualify. Fewer attempts at the doors of various lenders for getting loans reduce the short-term damage to your credit prospects.

Ensuring that your 'reputation collateral' is reflected accurately will provide you with access to credit faster and on better terms.

Why FDs rated hgiher than NCDs

http://www.thehindubusinessline.com/features/investment-world/money-wise/article3901228.ece

If you are investing in a debt instrument, you need to check not just the interest rate but the credit rating too. But did you know that fixed deposits (FDs) and non-convertible debentures (NCDs) issued by the same company may have a different risk rating? Rating agencies may give a higher rating to an FD scheme from a company, despite its NCD being rated a notch lower or vice-versa.

But, why is it so? Well, industry and company specific risks hold good for all investors, irrespective of the instrument. That said, there are few factors that could lead to the differing ratings.

Time factor

The first one is tenure. Given that all businesses can go through cycles, risks for the same company may vary across time. If a rating agency thinks a business has higher uncertainties over the medium or long term, ratings for longer term instruments may be different from short term ones.

For instance, if the medium term outlook for a company looks promising, then rating agencies may consider a higher rating for FDs. However, assuming that uncertainties loom large for the company over the longer time frame, rating agencies may take a cautious stance while assessing long-term instruments such as NCDs and bonds.

Two, there can also be differences between credit ratings on instruments with the same tenure. The underlying security is one factor here. Instruments backed by collateral may have a better rating, when compared to unsecured ones. This is because the risk of default is hedged to the extent of the underlying security.

security

But mere collateral may not suffice. Quality of the security also matters. For instance, fixed deposit issues by NBFCs are backed by investment in government securities to the extent of 15 per cent of the receipts. In contrast, NCDs are usually secured by the company's receivables. Though secured, you may still run the risk of bad debt with receivables. Hence, rating agencies may give higher weight to the fixed deposit scheme by an NBFC than its NCD.

Instances of such divergent ratings across instruments are common with NBFCs. Sundaram Finance is a classic example. The company's FD has been rated as FAAA by Crisil, a leading rating agency, while its NCD has been rated one notch lower at AA+ (plus). Other NBFCs with a similar trend include Mahindra & Mahindra financial services (MMFS) and Shriram City Union Finance (Shriram).

MMFS's FD has been rated as FAAA by Crisil, while its NCD has been rated at a lower grade AA+ (plus). In the case of Shriram, its FD carries a FAA rating, higher than its NCD rating of AA – (minus).

According to Crisil, FD issues are rated better as they attract higher retail participation. Being retail in nature, the ticket size of the issue may be relatively small, unlike NCDs. This may cushion the issuing company from the refinancing pressure, at the time of maturity. Simply put, all the investors are unlikely to pull out at the same time.

This is in contrast to NCDs, which as a category are largely aimed at institutional investors.

In Crisil's view, a fair amount of fixed deposits get renewed and this strengthens the case for a better rating. However, given the medium-term rating scale for these instruments, it makes sense for you to look at the NCD rating for the issuing company too. This can throw light on the long-term concerns that the rating agency has for the company you invested in.

Luminous - Lack of management bandwidth leading to lower margin - A real risk

The revision in outlook underlines the Luminous group's lower-than-expected profitability estimated in 2011-12 (refers to financial year, April 1 to March 31) because of writing of an extraordinary expense of Rs.650 million as a one-time adjustment done in the books of account. In 2011-12, the group has incurred an estimated net loss of around Rs.283 million as against CRISIL's expectation of a healthy profitability. The Luminous group's operating margin in 2011-12 is also estimated at weaker-than-expected levels; the group's operating profitability is estimated at around 5.8 per cent in 2011-12, lower than the operating margin of around 9.4 per cent in 2010-11. This is because of the decline in the Luminous group's market share in the first half of 2011-12 because of limited management bandwidth available in the first quarter of 2011-12 as the acquisition by Schneider Electric South East Asia (HQ) Pte Ltd (Schneider) was underway, and also because of the relatively cooler summer season leading to a fall in the overall demand.

More power woes

Hyderabad April 30: 

The Rs 1,500-crore ferro alloy industry in Andhra Pradesh, which accounts for 30 per cent of the country's total production, has slashed production by almost 40 per cent, impacting steel makers in this region.

This comes in the wake of a hike in power tariff by the State Government and prolonged power cuts in the last few days.

The AP Electricity Regulatory Commission has effected a nearly 50 per cent hike in tariff, increasing it from Rs 2.65 a unit to Rs. 3.65 for the ferro alloys sector with effect from April 1.

The ferro alloy producers will be meeting in Hyderabad on May 9 to decide on whether to appeal before the appellate authority of the commission. In the meantime, the production cut will continue, industry sources said.

There are 30-odd companies in the State producing 2.5 lakh tonnes of ferro alloys, a bulk of which are located in Visakhapatnam and Vizianagaram districts.

The 50 per cent hike in power tariff has increased production cost by Rs 4,000 a tonne for ferro chrome and ferro manganese and Rs 9,000 for ferro silicon.

Production of ferro alloys, a vital input for the steel industry, is power-intensive, with energy constituting between 40 per cent and 70 per cent of the production cost. Power consumption is about 4,000 kwh per tonne for ferro chrome and silico manganese and 9,000 kwh for ferro silicon.

"We could have taken a 20-25 per cent hike, but this increase makes the industry unviable, as we have to compete with suppliers from other States that enjoy cheaper power," Mr R.K. Saraf, CMD of Facor Alloys Ltd, and President of AP Ferro Alloys Producers Association, told Business Line.

This development could discourage the proposed investments of Rs 5,000 crore by this sector in Andhra Pradesh, involving a new capacity of 2.5 lakh tonnes.

Production cost is also high as 95 per cent of their raw materials has to be sourced from outside the State. "For one tonne of ferro chrome, we need 2.5 tonnes of chrome ore. Transportation cost of the raw material alone is Rs 5,000 a tonne," Mr Saraf pointed out.

Impact of Power Cuts

Hindu Business Line Hyderabad, May 6: 

Restile Ceramics Ltd, a manufacturer of ceramic tiles, has announced closure of its factory due to inadequate power supply.

In a statement to the stock exchanges, the company mentioned that it was forced to take this extreme step due to erratic and inadequate supply of power.

While the company has made representations for better power supply, there has been no exemption from power cuts.

In the BSE statement , Restile said: "Central Power Distribution Company of A.P. Ltd has imposed compulsory power holiday for two to three days in a week. This is in addition to three hours of power cut on daily basis for the rest of the week days."

The company representations to the Distribution Company to exempt it from compulsory power holiday citing the ceramics industry's need for continuous power, have not been successful.

Due to the precarious power supply situation, the distribution company was not in a position to exempt the company from power cuts.

Under the circumstances, the company management stated that it had no other option but to declare a layoff with effect from April 12.

Consequent to this layoff, the company stated that the workers were not allowing dispatches of existing stocks available in the company. Due to these developments, the company has temporarily declared lock out with effect from April 23.

The plant, with a capacity of 12,000 tonnes a year, is located in Medak district .

vrishi@thehindu.co.in

Nice Thoughts

"The danger of Board management, against which
one has to be on one's guard, is lest one should succeed in persuading the Board
rather against its better judgement in the first instance, and then have to suffer the
penalty of their faint-heartedness at a later date, just when the virtues of continuity
of mind are most required if one is to be successful in the long run"

Credit cycling means
in practice selling market leaders on a falling market and buying them on a rising
one and, allowing for expenses and loss of interest, it needs phenomenal skill to
make much out of it

As time goes on, I get more and
more convinced that the right method in investment is to put fairly large sums into
enterprises which one thinks one knows something about and in the management
of which one thoroughly believes

Keynes also thought in a novel way about equity valuation. For example, he
estimated the value of Austin Motor shares in terms not only of earnings yield but
also of market capitalisation per car produced and estimated that Austin traded at a
67% discount to General Motors in October 1933

"Buying is forward-looking and selling is backwardlooking.
We tend to consider what a new stock will do for the portfolio and what a
current holding has done. This makes buying a more hopeful activity, focusing on
the future and what good might come from owning a stock, whereas selling can be
full of regret as we ponder the poor choice we made or that we held on too long"

when buying, investors consider the past
only inasmuch as they believe it is informative about the future, but when it comes
to selling their focus is heavily on the past and many investors, seeking to minimize
regret, sell winners too early and hold on to their losers

Tea - Economics

http://www.thehindubusinessline.com/companies/article3317925.ece