Packaging material manufacturer The Tinplate Company of India Ltd (TCIL) reported sales of Rs 240 crore, net profits of Rs 2 crore and earnings per share (EPS) of Re 0.7 per share. That was four years ago.

Today, the company's sales have grown one-and-a-half times, profits have pole-vaulted 24 times and EPS has shot up to Rs 11.36 per share.

That's interesting. Even more interesting: did you know that TCIL is a 32 per cent owned subsidiary of the Rs 17,000-crore Tata Steel? TCIL's history dates back to 1920, when the country's entire requirement of tinplate (stamped-steel coated with tin to prevent rusting) was imported by this Jamshedpur-based company, then owned by Burmah Oil. In 1982, Tata Steel took over the management.

The contribution of TCIL to Tata Steel's mammoth turnover may be insignificant, but this low-profile firm has given smashing returns to investors. Somebody who bought into TCIL in July 2003 would have made 380 per cent on his investment in April 2006, when the scrip touched an all-time high of Rs 106. Now, when the scrip is in the Rs 60 range, his investment will have gained roughly 170 per cent.

Up until even the fairly recent past, such success stories and such investor returns were commonly associated only with the listed subsidiaries of multinationals like Unilever, Gillette, Procter & Gamble, or Asea Brown Boveri. Today, though, there are many such companies, little-known subsidiaries of the big boys of India Inc., busy spinning success stories in their own small, but significant way.

Whether Gruh Finance, an HDFC subsidiary that doles out small-ticket loans in rural India, or GVK, an Indian Hotels subsidiary that runs budget, luxury and business hotels, these businesses have made a splash. And the best bit? In many instances, they have outpaced their parents in turnover and profit growth (see Junior Overtakes Dad). The good news for investors is that these companies are sharing their growing wealth, and shareholders have been rewarded handsomely.

Most of these listed subsidiaries are the result of either an acquisition or the exit of a joint venture partner. The upturn in the country's economy in the past two to three years has provided an additional boost-propelling these growing companies into the fast orbit.

With the stock market's recent tumble, investors are chary of anything that does not look totally fail-safe. Also, the obvious move today would be to stock up on the solid, blue-blooded parent companies themselves, given that the market volatility has made them available at a discount. If, however, you want to dig further for profits, this would be an appropriate time to look at some offbeat investment options. We pick here six subsidiaries, backed by solid management and good performance, which look promising for the long term. And they are going cheap.

Ancillary Story

"Buying subsidiaries is the cheaper route to an exposure in the parent company, but investors should always consider issues like corporate governance and minority interest. If a merger is on the cards, find out how long the waiting period will be," says Deepak Jasani, Head (Retail Research), HDFC Securities.

Traditionally, subsidiaries were often used by parent companies to dole out controversial, interest-free loans to promoters. In fact, there were corporate governance issues like company affairs being indirectly managed by the parent firm despite the presence of an independent management.

Some of these issues seem to have been sorted out now, at least by the high-profile companies. Today, subsidiaries have found their own identity and stay at arm's length from their parents. They raise resources independently, through rights offering, borrowings from the market, or through internal accruals (see Look Ma,...). Financial independence means managerial freedom. Shree Digvijay Cement, for instance, just closed a Rs 132-crore rights offer issued to meet fund requirements.

Growth has also come from the ambitious expansion programmes these newly confident companies have launched. Says R. Swaminathan, Associate Vice President, IDBI Capital Market Services: "Expansion plans at huge outlays augur well for companies like Tinplate, Mangalore Refinery and Taj GVK. Capacity addition and timely project completion will provide much value-addition in the days to come."

Taj GVK plans to invest Rs 400 crore in new properties at Hyderabad and Chennai, aimed to increase its inventory to 1,400 rooms that will open commercially between fiscal 2007 and 2010. According to Motilal Oswal Securities, the demand-supply ratio of hotel rooms in Hyderabad is looking hot. A recent report says: The average occupancy rate in Hyderabad in April-May 2006 stood above 82 per cent, with an average room rate of Rs 8,600. "We are increasing our capacity at Taj Krishna Hyderabad with an additional 125 guest rooms, taking our total room inventory to 385. The new rooms are likely to be operational by 2009-10," says G. Indira Krishna Reddy, MD, Taj GVK.

In Gujarat, HDFC subsidiary Gruh Finance has witnessed a smart 17-18 per cent growth, compounded annually, in the last few years. "Our strategy is to have offices in all the districts and then cover talukas and villages," says Sudhin Choksey, MD. His company also plans to issue a Rs 60 crore rights offer shortly.

Meanwhile, TCIL plans to double capacity by 2008. Says MD B.L. Raina: "The company is focussed on moving up the value chain and becoming a packaging solutions provider."

Institutional investors, in fact, have already placed their stamp of approval on some of these success stories. The Rs 11,000-crore Tata Asset Management Company and Tata Investment have close to 3 per cent equity stake in Gruh Finance. Birla Sun Life, the financial arm of the Aditya Birla Group, owns 1.47 per cent equity stake in Taj GVK. Similarly, housing major HDFC holds 9.82 per cent equity in Indraprastha Medical, a subsidiary of the Delhi-based Apollo Enterprise as on March 2006.

Home Advantage

The big advantage of being the offspring of famous parents is the access to management bandwidth and expert guidance at no cost. It also becomes much easier to raise resources from the market. "The long-term potential of these subsidiaries is in alignment with the growth of the parent companies," says Swaminathan.

Also, as Jasani explains, a strong parent makes a turnaround story far easier. When Grasim acquired Shree Digvijay Cement in 1998, the Jamnagar-based company was in trouble with soaring raw material costs, excess manpower and crippling power bills. It had been referred to BIFR (Board for Industrial & Financial Reconstruction) twice. In two years, the Aditya Birla Group turned the company around. "The focus will now be on plant modernisation," says D.D. Rathi, Director, Grasim.

On Dalal Street, most of these companies generally enjoy a lower p-e (price-earnings) ratio than their parent companies, but if there are any expectations of a merger with the parent, the P-Es tend to converge. As far as returns go, shareholders have little to complain about, with dividends and bonuses flowing (see Sharing The Goodies).

Although there are issues like low market capitalisation (see The Flip Side) and liquidity, there are enough comfort factors that compensate: impeccable lineage, professional management and access to group synergies in crucial areas like marketing and finance. And if that much-awaited merger does happen, always the promise of a subsidiary, it will only gild the lily.

Horizon Plans

It's all very well talking about tending roses after you retire, but just how do you get there? By choosing the right retirement plan, says Krishna Gopalan

Timing counts: The earlier you plan, the fatter your retirement corpus

K.S. Ravishankar is a third generation entrepreneur who runs a plywood business in Chennai. At 38, Ravishankar already anticipates hanging up his boots in 10-12 years to catch up on his music and reading. He is looking forward to retirement, wants to be mentally and financially ready for it and has started investing in a mix of equity, real estate and insurance to build his nest egg.

Ravishankar is clearly an intelligent exception-few people start saving for retirement when still in their 30s. Reality usually hits a couple of years before that last working day, whereas any financial planner will tell you that retirement plans need to be drawn up the day you start earning. The advantages of an early start cannot be overstated (see Why You Should Start Today), but most people still put it off till too late. Says Gaurav Mashruwala, a Mumbai-based financial planner: "The truth is overall life expectancy in India has increased and in many cases people live 25-odd years after retirement." India does not have a social security system, which makes planning for retirement that much more vital.

Choosing Right

Once you recognise the need to plan, how do you then find out what to buy? Choosing the right investment mix is, in fact, the most important aspect of retirement planning. It depends on three basic factors: your risk appetite, the age at which you start planning and the periodicity with which you would like your retirement income to come in. Ideally, retirement income should flow in like a monthly pay cheque.

Why does age matter? Simply because people who start investing in their 30s can afford to take much higher risk. This changes as they age, or if they have started investing at a later stage. Ravishankar's portfolio is hardly conservative: "Equity accounts for 80 per cent of my total investment today, real estate for 10 per cent and the balance is a combination of insurance products."

At 38, this equity to non-equity ratio sounds good, but it will have to change when Ravishankar is closer to 50. Mashruwala points out that at the time of retirement, equity and non-equity should be a 25:75 mix: "During your 20s, 30s and 40s, the proportion of investment can have a greater equity tilt. After all, this will help you beat inflation at the time of retirement." Ravishankar has already planned to cut equity back to 60 per cent a decade from now, when insurance and savings will account for 30 per cent and real estate for 10 per cent.

The older you are when you start retirement planning the less risk you can take, but the more quickly your money needs to grow to beat inflation. You will be caught in a cleft stick. "The question at the time of retirement is whether you have put away enough money for the next 15 years," says Sam Ghosh, CEO, Bajaj Allianz Life Insurance. At 55, says Ghosh, you must think of longevity up to 75. "With the breakdown of institutions like the joint family, retirement planning has become paramount."

The Risk Factor

Everybody has spoken enough by now of the golden equity formula that says 100 minus age-thus, if you are 21, you invest 79 per cent in equity and the rest in debt. But in reality, a lot depends on an individual's risk appetite. To tackle this, Mashruwala recommends that in the early earning years conservative investors combine equity with mutual funds. Debt, of course, will anyway come in later in larger proportions. It is the sure, but slow option. "The debt phase comes in at a later stage with the objective of getting regular returns," points out Mashruwala. Here, you have post office savings, National Savings Certificates, Public Provident Fund, government bonds, debt funds, etc.

Your overall options, thus, are gold, property, equity and debt. Mixed judiciously, they should give you a reasonably good combination of fixed assets, growth options and safe investments that will together assure you a steady cash flow in your retirement years. The trick is to know what works when. If you break up the working life of an individual, the 20s and the 30s are the most important and often the most productive phase. "I would term these the golden saving years while the 40s and the 50s are the golden spending years," says Mashruwala.

Timing Payouts

Choosing what you buy to fund your retirement also depends on whether you want a lump sum payment just when you enter retirement, or prefer annuities or periodic payments. An endowment plan, for instance, will give you a solid amount at the end of the tenure while annuities give you regular monthly payments, as is possible with many pension plans or insurance schemes available today. The third option is periodic payments, where you receive fixed amounts at intervals of, say, five or 10 years. This is possible with Kisan Vikas Patras, NSCs, PPF, or money-back policies, where you can put in money at regular intervals, keeping in mind the stages at which you will want to withdraw the amounts. Ravishankar's portfolio, for instance, includes a whole life policy (LIC) and a money-back plan (Max New York Life), and his annual premium outgo is a hefty Rs 4.5 lakh.

Getting this mix right (see Looking Ahead) will depend on many factors: your health, how money savvy you are, your need for liquidity and so on, since each product has its unique features. The trick? Plan well ahead so that your retired life is as enjoyable and secure as your working years.

NEWS ROUND-UP

Make Your trip

Travel log: Journeys within India could get painless

Once upon a time, there were dacoits, now there are airport carousels. Both ensure you lose your luggage before you can say suitcase. Then there are various other acts of God and man that ensure that few journeys within India are without incident and excitement. Then why has it taken so long for domestic travel insurance cover to emerge on the scene?

Whatever the reason, the sector is now finally opening up. Today, walk into any airport and you'll find a counter selling accident cover coupons for about Rs 25, valid only for the duration of the flight. And now, several general insurers are stepping in with round-trip covers. "Fifteen million people travel by air today. They need a round-trip cover that starts the minute they leave home and lasts till they return," says Khalid Sohail, Head (Travel Insurance), Tata-AIG Life Insurance.

It will be a while before the market picks up. Says Sudhir Menon, Head, Travel Insurance, ICICI Lombard: "We are still in the market-building process. Certain segments like holiday-makers are picking it up, but the numbers are not anything to boast about."

Tata-AIG plans to launch its travel product within this month, while ICICI Lombard's domestic travel cover was launched about a year ago as a market dipstick that proved successful enough for the company to now plan an upgraded version.

The cover typically protects you against monetary and physical inconvenience suffered at any point during a journey inside India. It could be luggage lost during transit, organising accommodation because of travel delays, getting medical help in remote areas, even 'compassionate' visits when a family member has to be flown in because of illness during the trip. The ICICI cover, in fact, also protects you against burglaries at home while you were away Taj-gazing.

The Tata-AIG cover carries a premium of Rs 140 for a three-day trip and Rs 286 for 90 days. The ICICI Lombard cover starts from Rs 180 for seven days, and goes up to Rs 500 for their Gold Plan that lasts up to 70 years. The Silver Plan offers only medical cover at a premium that does not exceed Rs 300. Well, next time your luggage goes missing, at least someone picks up the tab.

-Ahona Ghosh

Fares In Free Fall

"Prices have touched ludicrous levels on some routes such as Delhi-Guwahati, with the lowest fare in the second week of July a little over Rs 500," says a Delhi-based travel agent. With the entry of low-cost carrier IndiGo, the downward pressure on airfares just got stronger. There's been a 50 per cent increase in airline capacity in the past two years, but the market has not really grown. The result: airlines continue to bleed. In India, there is not much difference in cost structure between low-cost and full service carriers, which makes competition even fiercer, says Ankur Bhatia, Executive Director, The Bird Group.

Passengers, of course, are not complaining. Their chief crib: grossly inadequate infrastructure. Plus, the various ifs and buts now associated with cheap fares: extra charges for online booking or cash payments, huge cancellation costs, flight delays... The fares don't always make up for these pinpricks.

Meanwhile, SpiceJet, GoAir and Air Deccan command about 26 per cent of the market, but you can get cheap fares from any airline, either due to flight times or poor demand. So, shop before you fly.

-Kapil Bajaj

ULIPs In Bloom

A host of new-look unit-linked policies (ULIPs) have hit the market, after the Insurance Regulatory and Development Authority's (IRDA's) strict new guidelines came into force from July 1.

ULIPs had for too long been treading a twilight zone populated by both insurers and mutual funds. Agents were having a field day exploiting this confusion. Now, IRDA has set ULIPs down firmly in the insurance space.

Changes include increasing the minimum term to five years from three, and ruling that the risk cover portion of the policy will be at least five times the annual premium. Earlier, despite miniscule insurance components, ULIPs enjoyed hefty tax breaks, thus making them efficient investment vehicles. Also, the older policies left buyers shocked when they discovered the huge percentage of their premium that went towards service, mortality and other charges. Now, when it is clear what component of the premium goes towards risk cover and what towards investment, policyholders know what they are getting into. In fact, about two years ago, IRDA had told agents to stop using inflated returns projections that misled policyholders, asking them to project illustrative returns at 6 per cent and 10 per cent only.

Another area where there will be much more transparency is on charges, with all fees being uniformly named across companies to make comparison shopping easier. Plus, changes in the computation of net asset values and deduction of rider premiums (accident, disability, etc.) are expected to bring simplicity and transparency.

A glaring loophole was the top-up premium, which allowed policyholders to pay various extra premiums in addition to the regular annual amounts. Top-up premiums often ended up exceeding the insurance cover many times over. Now, top-ups are restricted to 25 per cent of the total annual premium. In their new avatar, ULIPs will hopefully be significantly safer policies and meet the insurance objective better.

-Shalini S. Dagar

SMARTBYTES

Homing In On Retirees

The announcement by housing finance regulator national Housing Bank (NHB) to launch the reverse mortgage facility for senior citizens is welcome news. Very popular in the US and the UK, the product allows people above 60 to mortgage their property for soft loans (based on property value) while continuing to live there. There are no EMIs or repayments, and the loan finishes when either the borrower dies or moves out of the house, with the lender taking over. NHB, which will offer refinance to lenders for reverse mortgage transactions, has not yet taken the product to banks, but several housing finance companies have already shown interest. "We hope to facilitate these transactions in the next six months," says R.V. Verma, Executive Director, NHB. The loans don't require proof of income, can be taken in two or more tranches, and used for any purpose. Although expensive, they offer senior citizens access to much-needed liquidity at an age when credit is hard to come by.

-Anand Adhikari

A Life Less Taxing

Taxation simplified: Thanks to a new website

If you run a soho or small business, this new website promises to eliminate the tax consultant from your life. According to Vijaya Kalyan, Chennai-based promoter of www.aceprocedures.com, this site simplifies taxation, with FAQs, downloadable forms, and information on everything from covering letters and fees to due dates and tax rates. You even have addresses and telephone numbers of the concerned tax officers. The various areas covered include tax (sales, income, service and professional), company and partnership law, provident funds, plus specific modules for software companies and NGOs. The annual subscription rate is Rs 900 for one user, although there is free access to a section called business essentials, which has practical tips on basic business, from locating office space to recruiting manpower.

-Nitya Varadarajan

Driving Factor
If you think your car costs what it says on the price tag, you have another think coming. In fact, maybe another car altogether.

By Kushan Mitra

On-road bill: Fuel, spares, repairs all add up in the coasts column

It's that time of the year... increments and bonuses are in hand, swank new cars are in the showrooms, and you are itching to zoom away in one of them. And what are the factors you weigh as you test-drive a different set of wheels each day? Colour, brand, sex appeal, of course, and then the crucial one: price. You obviously can't buy a Rs 14 lakh Skoda Octavia on a Rs 4 lakh small-car budget.

But, is that all there is to the price factor? Actually, there is a lot more and it can be neatly illustrated in the concept made popular by it: that of TCO or Total Cost of Ownership. TCO is designed to help consumers and producers estimate all the direct and indirect costs of purchasing any equipment or system (see That TCO Thing).

What this essentially means is that you cannot buy a car today simply because its retail price is lower than another's. Try instead to foresee what you would spend if your mad cousin drives it and uses a pillar to brake: will you be breaking the bank on repairs? Or what when you want to sell it five years down the line? Will you get just scrap value for it?

Sum Total

The cost of owning a car thus keeps adding up: EMIs (equated monthly installments), fuel costs, spare parts, resale value... What we have done here is some basic number crunching to show you just how two and two never quite add up when it comes to owning a car.

We use the Maruti Alto lx to make the point, a relatively cheap car at Rs 2.89 lakh (on-road price in Delhi). First, assume you take a Rs 2.5 lakh loan at 9 per cent, paying Rs 39,000 as down payment. That means you are staring at an EMI payment of Rs 5,190 per month for five years.

Now, the Alto enjoys comparatively good fuel economy-about 15 km to a litre-so running costs will be low but they still have to be factored in. Assuming you run your car about 1,500 km a month, at Delhi prices, that means Rs 5,000 per month on fuel.

Then, even if you are the most careful driver in the world, you have to spend on oil, coolant, air and oil filters, and other consumables, plus annual maintenance and insurance premiums. Maintenance is usually a killer cost, especially at the authorised dealer workshops. Add this all up and your cost goes up to an average of Rs 10,500 per month. And we are not even including the cost of CDs for your car system and other doodads to swank up the interiors.

There's More

These are the regulars. What if you unfortunately have an 'incident' one evening that crumples your front bumper, scars your windscreen and dents the bonnet? When you replace them with Maruti Genuine Parts (fake spares can be risky), it will set you back at least Rs 3,000 if insured. Three such mishaps add Rs 10,000 to the cost of owning the car.

And then comes the clincher. After the loan is repaid, you decide to sell your car in the second-hand market (see Second Helping). A five-year-old Alto today sells for about Rs 1.75 lakh (Delhi), and is likely to remain more or less in this bracket five years from now. You can get about Rs 1.75 lakh on your (by now) Rs 7 lakh investment, which means on a 60-month investment you lost Rs 5.25 lakh. Ouch!

Net-net, the Alto lx that retails at Rs 2.98 lakh really costs Rs 5.25 lakh through its lifetime of 60 months. That works out to an effective cost of Rs 8,750 per month or Rs 5.84 per km (mileage of 1,500 km a month) to own and operate. Both figures are based on the assumption that the car is sold after five years and the loan costs 9 per cent.

The Alto is among the cheapest cars to own and run in India, with only the Maruti 800 cheaper. As you move up the value chain, cars become more expensive. Once you move to B-segment cars such as the Hyundai Santro or Maruti Wagon-R, your loan amount goes up, fuel economy comes down and cost of spares rises. Using the same formula, the TCO of these cars would be around Rs 8.75 lakh through a five-year life.

However, and here's the crucial thing, you will get back more when you sell a Santro or Wagon-R. You can safely assume that a used Santro Xing will fetch Rs 2.25 lakh in five years, which brings the TCO of this car down to about Rs 6.50 lakh. That works out to roughly Rs 7.22 per km. As you move up to the Hyundai Accents or Ford Fiestas, ownership costs explode to Rs 8.5-9 per km.

Although the math we have used is basic, it gives you a fair idea of a car's TCO. In fact, banks are beginning to extend loans on the assured resale value. For example, the Toyota-ICICI Bank Bullet scheme allows Corolla customers to pay a 'bullet' amount at the end of the loan tenure and replace their old car with a new one.

Says Ravi Bhatia, General Manager, Maruti Udyog: "The concept of TCO is still very alien in India, but consumers are beginning to look at it more closely. They are not interested just in fuel economy; resale value and cost of spares also play a role in buying decisions."

Cutting Back

Is there any way of reducing the TCO? Well, discounts on MRP do make a difference but when a car is heavily discounted, keep in mind that its resale value is probably weak as well. However, during a slow month (such as the shradh period, traditionally considered unlucky by most Indians), you could get good discounts even on popular cars such as the Alto or Santro. Haggling on your loan is another option, but with interest rates heading up, your margin for negotiation is limited.

While keeping an eye on second-hand rates helps, many cars in India today are too new to have arrived in the used-car marts. In these cases, brand perception can play a role. For example, Honda has a positive perception and this should enhance the resale value of the Honda City when it enters the second-hand market in a few years.

Knowing that the real cost of owning a car could be almost Rs 2 lakh higher than its label price is a dampener. But, the truth is nobody is really complaining-cars are not investments, they are depreciating assets and nobody buys one to make money (unless you buy a super-rare vintage, but that's another story). The point is to use this knowledge to buy a car sensibly. Splurge on your hot wheels, but splurge smart.

In Our Sites

As infrastructure investment grows steadily, construction stocks reap the benefits.

By Aman Malik

Buzzing action: Construction activity is on at a furious pace across the country

Look around and you won't really have to labour hard to spot new buildings or a flyover sprouting up. Indeed, construction activity is going on at a furious pace unprecedented in the country. And construction sector stocks look like they could deliver value over the medium and long term.

What appears to have given impetus to the flurry of activity is the government's new attitude. "The government is taking on the role of facilitator and making a serious effort to build up this space," says Ravi Sardana, Senior Vice-President, ICICI Securities.

In February 2005, the central government approved 100 per cent FDI in real estate through the automatic route (subject to a minimum capitalisation of $10 million or Rs 44 crore for wholly-owned subsidiaries and $5 million or Rs 22 crore for joint ventures with Indian partners) with the liberty to repatriate profits after three years, prompting players like Emaar-mgf Land (JV between MGF Development of India and Dubai-based Emaar Properties PJSC) to announce plans for an Indian foray.

Moreover, the government itself has earmarked huge investments for the construction space and is encouraging public-private investment synergies. In fact, the Planning Commission, for the 11th Five Year Plan, has slotted 7 per cent of GDP on infrastructure, up from the current 4-5 per cent.

In the private sector, companies are sitting on future orders that are considerably larger than their existing ones. "Firms with projects worth, say, Rs 200 crore have booked Rs 500-1,000 crore projects," says a Delhi-based analyst.

Analysts are bullish on the sector and contend that it is the right time to enter, provided you can stay put for the medium to long term. Companies involved in highways construction seem the most promising, but those operating in spaces like urban infrastructure and irrigation also look strong.

While choosing stocks, analysts advise caution. The average investor should stay away from small players and look for companies that have instituted high-quality management systems. Among large companies, Larsen & Toubro seems to be a solid bet. In the mid-cap space, you could consider stocks such as Simplex Infrastructures, Era Constructions, Nagarjuna Construction Company, IVRCL, and Hindustan Construction.