Guest Post – Stock Market Investment Post Retirement

This is a guest post from  Mr. Ramalingam K.

Most Retirees feel great getting a bulk sum as provident fund and gratuity, and wish they knew a magician, who could spin their money 2 to 3 times in just 5 years, in addition to ensuring a regular return for their day to day expenses. It is true we all want it to keep up with the inflation rate in the market. I know of no such magicians, and it is practically not possible to multiply your money 2 to 3 times in just 5 years. But I definitely know of smart investment planning and investment advisors that could help you to beat inflation.

A step by step look at your considerations to come out with smart calculated investment decisions:

• Post-retirement, you know that you would no longer earn a regular income and would have to stay on your savings, provident fund, gratuity, and other benefits that have been given to you. You would definitely want more good returns on your investments, but your appetite for risk is low, for you would not want to lose your precious savings. So you would prefer to shift your portfolio of investment from risky ones to safer ones like fixed deposits in banks and good rated companies.
• However your need for more income, capital gains to keep up with inflation, and rates of interest on fixed deposits decreasing each year may make you puzzled about coping up with the increased financial needs. You, as a senior citizen are lucky to be getting additional interest, however taxes leave you with not much more. However you are not prepared to subject your savings to the volatile bullish and bearish trends of the share market of over-confidence and pessimism.
• You retire at 60, considering 5% is the rate of inflation annually, with life span as 85, and spending Rs.20000 per month, you would require a retirement corpus of Rs.42,00,000 if the return rate was 8%, while you would require Rs.47,00,000 if the return rate was only 7%.  I am sure you would invest smart, reducing your retirement corpus by 10.5% by just investing for 1% more return.
• It is true that stocks and shares gave an annual compounded return of 17 to 18% in the last 15 years, with long term stocks giving a compounded returns of about 15 to 18% annually. However you have not appetite for risky and volatile investments, and may want to play safe with low or moderate risk to capital and in not putting all your eggs in one basket or to divide your risk.
• After your retirement you would do best to follow the advice of financial experts and invest no more than 10 to 20% of your retirement corpus in shares and stocks. A novice to the share market, or lack of time, inclination or shrewdness may not prove right to deal in the share market, and most financial advisors advice senior citizens to invest in mutual funds. These companies have experienced fund managers and researchers with in-depth knowledge of various industries and valuation principles and also offer diversified investment options in shares in companies, debt instruments and government securities.
• The choice of retirees should be to invest in big cap funds, funds investing in huge paid-up capital companies, while mid cap funds suit those who do not mind medium risk-taking. However small cap funds, invested mostly in start-up companies are to be avoided, being highly volatile in nature.
• Time plays a vital role in investment in mutual funds, and a good investment advisor would advice you appropriately. The best option for senior citizens would be to first invest a lump sum in a debt based funds that promise good, safe and regular return. This could be followed up by a systematic investment/transfer plan of investing or transferring through ECS regularly a fixed amount for units of a mutual fund. This definitely proves beneficial to take advantage of the volatility of the market, as buying different number of units each month helps to spread the risk also.

A Final Thought:
However your smart calculated investment choice of mutual funds requires evaluating every 3 to 6 months. This would help switching between mutual funds at the right time. My last but most important advice again especially to senior citizens is never go in for stock trading in a big way without proper knowledge and inclination and lose due to volatility of stock and share market.

(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in)

The post has been formatted before posting, but the contents have been unchanged. The views expressed are those of the author only. This post also appears on moneybol.com.

PRAJ Industries – Long Term Analysis

Q1. What is the business of PRAJ Industries?

PRAJ Industries provides plants and equipments to the alcohol/fuel ethanol manufacturers, bio-diesel, brewery manufacturers. It also provides Industrial water and waste water treatment solutions. Apart from this, PRAJ provides bio-nutrients for e.g. Fermentation Performance Enhancers to boost ethanol production. Also, it provides Agro Energy consultation.

Q2. Does PRAJ Industries has identifiable durable competitive advantage?

PRAJ Industries addresses the need of the entire value chain for alcohol, ethanol and beer production. The company focuses on clean energy solutions, which has great future potential since the entire world is favouring the alternate energy security. The technical expertise and knowledge gained by PRAJ over the last 25 years along with significant investment in R&D will provide the necessary moat for the company. Also government policies all over world are favourable to the PRAJ business.

Q3. Does the company have high demand growth? Will it obsolete in next 20 years?

The alternate energy resources are being sought after by the entire world especially bio-fuels & ethanol based energy resources. The demand for energy is every rising and the traditional sources of fossil fuels are feared to be depleting very fast. PRAJ Industries get 50% revenues from domestic and remaining from world markets. Apart from the existing products, if PRAJ is successful in producing ethanol from non-food materials, that would make it a significant player in alternate energy resources. Hence from a product perspective the company should not only be existing but rising rapidly in the next two decades.

Q4. Does the company allocate capital exclusively in the realm of its expertise?

If we look at the milestones achieved by PRAJ Industries since its inception, it has judiciously utilized to acquire companies related to its business and to forge partnerships to gain market leadership in various countries. This is a good observation in terms of management focus on the primary business of the company.

Q5. What does the quantitative analysis of the company indicates?

Net Sales have been growing at more than 22% for the past 10 years except in last two years. The last two years were tough due to global recession and the issue existed with entire industry. The CAGR growth of Net Sales over past ten years has been more than 30%. It is a positive trend.

Earnings per Share have been positively growing within acceptable limits. Although last two years have been terrible with negative growth rate for EPS. The CAGR growth of EPS over past ten years has been closer to 50%. I am bit dis-appointed by this strange volatility. It is a negative trend but not alarming.

Return on Invested Capital have extremely positive trend with year on year growth of 15% or more. It is a positive trend.

Profit After Tax has good positive trend over the last ten years. It is a positive trend.

Debt/Net Profit Ratio has been almost NIL. It is extremely positive trend.

Dividends payouts have not been very exceptional, but they have been regular and consistent. This indicates the management willingness to share the profits but ploughing back the majority of earnings back into business. It is extremely positive trend for long term value.

My Fair Value Calculation has been :

Q6. What are the current or potential risks for the company?

Risks for the company involves the following:

• The bio-fuel/ethanol business is mostly controlled by government in many countries and government laws may become hindrance.


• Research into newer and viable technology to produce ethanol from non-food materials is an essential requirement. This Forbes article indicates the challenges ahead for PRAJ Industries although the article is very pessimistic about success of PRAJ Industries.


• Competing with other companies in global arena will not be easy without significant research breakthrough.

Summary: I feel that PRAJ Industry is a good investment for next 2-3 years, but it needs to be seen whether PRAJ Industries can provide significant breakthrough in the research in these coming years. This will decide the fate of the company. The current stock is under-valued. The management has been prudent and focussed entirely on the primary business of the company. The management is capable and focussed towards optimal capital usage with organic growth. The business diversifications are also based on the current expertise of the company.

Disclosure: I have small position in PRAJ Industries at the time of writing.

Standard Disclaimer: The information contained herein is based on my analysis and up on sources that I consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.