1. Conflict of Interest
A conflict of interest (COI) occurs when an individual or organization is involved
in multiple interests, one of which could possibly corrupt the motivation for an act in the
other.
The presence of a conflict of interest is independent from the execution of
impropriety. Therefore, a conflict of interest can be discovered and voluntarily defused
before any corruption occurs. A widely used definition is: “A conflict of interest is a set of
circumstances that creates a risk that professional judgment or actions regarding a
primary interest will be unduly influenced by a secondary interest.” [1] Primary interest
refers to the principal goals of the profession or activity, such as the protection of
clients, the health of patients, the integrity of research, and the duties of public
office. Secondary interest includes not only financial gain but also such motives
as the desire for professional advancement and the wish to do favors for family
and friends, but conflict of interest rules usually focus on financial relationships
because they are relatively more objective, fungible, and quantifiable. The
secondary interests are not treated as wrong in themselves, but become objectionable
when they are believed to have greater weight than the primary interests. The conflict in
a conflict of interest exists whether or not a particular individual is actually influenced by
the secondary interest. It exists if the circumstances are reasonably believed (on the
basis of past experience and objective evidence) to create a risk that decisions may be
unduly influenced by secondary interests.

2. IFCI
Industrial Finance Corporation of India At the time of independence in 1947,
India's capital market was relatively underdeveloped. Although there was significant
demand for new capital, there was a dearth of providers. Merchant bankers and
underwriting firms were almost non-existent. And commercial banks were not equipped
to provide long-term industrial finance in any significant manner.
It is against this backdrop that the government established The Industrial Finance
Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution
in the country to cater to the long-term finance needs of the industrial sector. The newly-
established DFI was provided access to low-cost funds through the central bank's
Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances
to corporate borrowers at concessional rates.
This arrangement continued until the 1990s when it was recognized that there
was need for greater flexibility to respond to the changing financial system. It was also
felt that IFCI should directly access the capital markets for its funds needs. It is with this
objective the constitution of IFCI was changed in 1993 from a statutory corporation to a
company under the Indian Companies Act, 1956. Subsequently the name of the
company was also changed to 'IFCI Limited ' with effect from October 1999.
IFCI has fulfilled its original mandate as a DFI by providing long term financial
support to all segments of Indian Industry. It has also been chiefly instrumental in
translating the government's development priorities into reality. Until the establishment
of ICICI in 1956, IFCI remained solely responsible for implementation of the
government's industrial policy initiatives. Its contribution to the modernization of Indian
Industry, export promotion, import substitution, entrepreneurship development, pollution
control, energy conservation and generation of both direct and indirect employment is
noteworthy.

3. Formation of IFCI: The IFCI was the 1st specialised financial institution setup in
India to provide term finance to provide term finance to large industries in India. It was
established on 1st July, 1948 under The Industrial Finance Corporation Act of 1948. IN
1993 it was reconstituted as a company to impart higher degree op operational flexibility
in operations.
Objectives of IFCI:
The main objective of IFCI is too provide medium and long term financial
assistance to large scale industrial undertakings, particularly when ordinary bank
accommodation does not suit the undertaking or finance cannot b e profitably raised by
the concerned by the issue of shares.
Functions of IFCI:
1) For setting up a new industrial undertaking.
2) For expansion and diversification of existing industrial undertaking.
3) For renovation and modernisation of existing concerns.
4) For meeting the working capital requirements of industrial concerns in some
exceptional cases.

4. Topic
The much awaited initial public offering (IPO) of Multi Commodity Exchange of
India (MCX) hit the market in February 2012. The offer is a milestone for the Indian
stock markets as MCX is the first commodity exchange to go public. Indeed, MCX is the
first exchange to be listed on stock exchanges. Earlier, listing of National Stock
Exchange and Bombay Stock Exchange was on the horizon. But due to issues like
conflict of interest those talks remained on paper and subsequently vanished into thin
air.
The MCX IPO was oversubscribed more than 45 times including the portion of
anchor investors and over 54 times excluding anchor investors. The issue received Rs
36000 crore as against the issue size of Rs 663 crore. MCX was listed at a huge
premium of 35% to its issue price of Rs 1032 and currently is valued at Rs 6288 crore
considering its latest closing of Rs 1233.
Financial Technologies (India) (FT), largely a software firm that makes popular
equity trading software Odin, used by stock market brokers for trading, has 26% equity
stake in MCX. The promoter's equity stake is currently valued at Rs 1635 crore. Against
this liquid wealth, FT's market capitalisation stood at Rs 3606 crore. Is FT undervalued?
FT's price to earning (P/E) multiple is around 45 on trailing 12 months (TTM) ended 31
December 2011 and seems to be the case of rich valuation. However, based on the fact
that FT's 26% MCX holding constitutes around 45% of FT's total market capitalisation,
FT commanding rich valuation is no surprise.
FT's revenue model is unique. Apart from developing software, the company is
into nurturing new businesses, building scale of the businesses and making profitable
exit. Clearly, MCX is a hidden treasure for FT's equity investors. MCX would support
FI's valuation, providing a sense of security to investors.
Another mega beneficiary of listing of MCX is IFCI. IFCI holds 24.42 lakh equity
shares of MCX or 4.79% of its equity base. At the current level, this holding of IFCI is

5. valued at Rs 301 crore, which is over 9% of IFCI's current market value of Rs 3295
crore. No wonder, IFCI has gained 104% to Rs 44.35 in 2012 till 9 March from the 30
December 2011 closing of Rs 21.75 in the run-up to MCX's listing. Other listed
companies holding equity stake in MCX include Corporation Bank (3%), Union Bank of
India (1.07%), State Bank of India (1.04%), Canara Bank (1.03%), Bank of India
(1.03%), and HDFC Bank (1.03%).
Probably the best part about FT and IFCI is both these firms have liquid wealth in
the form of a listed company whose value can be determined on a regular basis. There
are several such companies with liquid wealth. Capital Market has made an attempt to
unveil 15 companies with embedded jewels. The idea is not to talk about purely holding
companies or investment companies.
For instance, Tata Investment Corporation, which has investment in several Tata
group companies like Tata Chemicals, Tata Power, Voltas, Tata Global Beverages,
Titan Industries and Tata Motors, is not considered. Tata Investment Corporation is into
investment and earns revenue from dividend paid by companies and through capital
gains. Similarly, firms like United Breweries Holdings and Jindal South West Holdings,
which act as holding or investment companies, have not been considered. The core
theme is to pick companies running lucrative and profitable businesses and also holding
significant equity stake in successful business ventures with a strong financial profile.
Now the argument against this investment strategy is that the moment one
considers financials on consolidated basis, the financial performance of subsidiaries,
joint venture companies and associate companies is discounted and taken care of in the
consolidated financial results. True, but not completely. For instance, FT held 31.18% in
pre-IPO MCX. It holds 26% in post-IPO MCX. Now what impact does MCX have on the
consolidated financials of FT? In terms of hardcore figures, FT's standalone total
income stood at Rs 499.7 crore, while on consolidated basis FT's total income stood at
Rs 553.2 crore.

6. If one is not convinced with the fact that consolidated financial performance
cannot completely reflect on the trading floor and in the valuation, look at Sundaram-
Clayton, the second company in the lot of select 15 companies with liquid wealth that
can be en-cashed any moment. TVS Motors is an indirect subsidiary of Sundaram-
Clayton. Anusha Investments, subsidiary of Sundaram-Clayton, holds 48.56% and
Sundaram-Clayton holds 8.84% direct equity stake in TVS Motors.
Sundaram-Clayton is valued at Rs 607 crore, while TVS Motors has market
capitalisation of Rs 2109 crore. Interestingly Sundaram-Clayton's 57.4% equity stake in
TVS Motors would be valued at Rs 1210, which is twice the value commanded by
Sundaram-Clayton. If Sundaram-Clayton decides to offload TVS, it would make more of
money compared with its present market value. Sundaram-Clayton supplies raw
aluminium castings and machined castings for commercial vehicles, passenger cars
and two-wheelers.
The value mismatch noticed in the case of Sundaram-Clayton and TVS Motors
can also be seen in small- and mid-size companies. Transwarranty Finance holds
58.96% equity stake in Vertex Securities. Transwarranty Finance is valued at Rs 24
crore and Vertex Securities at Rs 59.6 crore. Transwarranty Finance's equity stake in
Vertex Securities is valued at Rs 35 crore, which is higher than its market value.
EID-Parry (India) is the third company among the 15 companies with embedded
diamonds. EID-Parry (India) holds 62.73% equity stake in fertiliser maker Coromandel
International. EID-Parry is broadly into five business segments: sugar, alcohol, power,
bio-pesticides and nutraceuticals. Among these, sugar and power are the main
segments by revenue contribution. Its sugarcane throughput capacity is 32,500 tonnes
crushed per day and co-generation capacity of 146 MW across its sugar mills.
EID-Parry is also a clear case of the market not taking into account its equity
holding in Coromandel International. EID-Parry's market value is around Rs 3386 crore,
while its equity stake in Coromandel International is worth Rs 5402 crore, which is over

7. 1.5 times EID-Parry's market worth. Coromandel International's market capitalisation is
Rs 8611 crore.
Out here, the substantial dividend paid by Coromandel International is one of the
key highlights. Coromandel International is generous in payment of dividend. It paid
700% in the fiscal ended March 2011 (FY 2011) and 500% each in FY 2010 and FY
2009. It paid dividend of 197.2 crore net of dividend tax in FY 2011. This translates into
equity dividend of Rs 123.7 crore for EID-Parry. This is a significant amount considering
EID-Parry reported net profit of Rs 79.2 crore in FY 2011 and Rs 205.2 crore FY 2010.
Tube Investments of India, the Murugappa group company, is into three
segments of bicycles, engineering (precision welded tubes & cold rolled steel strips) and
metal-formed products (rolled formed car doorframes and automotive chains). It
commands a market share of close to 30% in bicycles and 50% in the speciality
bicycles segment. It enjoys market share of 50% in precision welded tubes, 60% in
rolled formed car doorframes, and 40% in automotive chains.
Tube Investments also acts as a holding company and has 60.55% equity stake
in Cholamandalam Investment & Finance Company. It also holds 74% in unlisted
Cholamandalam MS General Insurance Co. This is embedded treasure. The listing of
Cholamandalam MS General Insurance in future could be a bonus for the company.
Tube Investments's holding in Cholamandalam Investment and Finance is valued at
around Rs 1230 crore as against its market cap of Rs 2700 crore.
In certain cases, the valuation seems to discount the value of equity holdings like
for Adani Enterprises, the fifth company. Adani Enterprises holds 77.49% equity stake in
Adani Port and Special Economic Zone and 70.25% equity stake in Adani Power. On a
standalone basis, Adani Enterprises is primarily into trading activities.
At the current market price of Rs 325, Adani Enterprises's consolidated P/E is
110 and standalone P/E works out to 13. This is based on financial numbers for FY
2011, with standalone earning per share (EPS) of Rs 2.95 and consolidated EPS of Rs
26.28 for FY 2011. The FY 2011 figures highlight the fact that consolidated figures

8. seem to be factored in the share price. Its equity holdings in Adani Port and Special
Economic Zone (Rs 20182 crore) and Adani Power (Rs 11524 crore) is currently worth
Rs 31705 crore, while Adani Enterprises itself is valued at Rs 35733 crore.
Among the most visible companies with several listed firms under its belt is
Mahindra & Mahindra (M&M). Apart from being the leading manufacturers of tractors,
passenger and commercial vehicles, M&M acts as a holding company for several group
companies that are into diverse businesses. The overall universe of M&M is massive.
M&M had 111 subsidiary companies, seven joint ventures and 14 group associate
companies on 31 March 2011.
M&M's strategic equity stakes in listed companies include Mahindra & Mahindra
Financial Services (56%), Mahindra Holidays & Resorts India (83.09%), Mahindra
Lifespace Developers (51.05%), Mahindra Forgings (52.97%), Mahindra Ugine Steel
Company (50.69%), Tech Mahindra (47.65%) and Swaraj Engines (33.22%). M&M's
equity stake in these companies is valued at around Rs 11200 crore as against M&M's
market capitalisation of Rs 40740 crore.
Gammon India is in a similar situation as Sundaram-Clayton and its subsidiary
TVS Motors. The company is presently valued at Rs 638 crore, which is lower
compared with its 72.45% equity stake in its subsidiary, Gammon Infrastructure
Projects, which is valued at Rs 792 crore. Gammon India is into civil engineering and
construction.
The firm executes infrastructure, transportation, power and transmission projects.
Promoted by Gammon India, Gammon Infrastructure Projects largely participates in
development of infrastructure projects in public-private partnership.
The past continues to haunt Gammon India. Indeed, one of the key reasons for
disparity in valuation between Gammon India and its subsidiary is the fact that Gammon
India is facing challenging times since the collapse of the underconstructed flyover in
Hyderabad in September 2007 Gammon India.

9. Gammon India points to another problem with the strategy of investing in
companies with massive listed wealth. The enterprise value of Gammon India works out
to Rs 2763.4 crore considering total debt of Rs 2126 crore on its balance sheet on 31
March 2011, while the enterprise value of Gammon Infrastructure Projects stood at
Rs 1266.7 crore, taking into account total debt of Rs 173.6 crore. Thus, for investors it
would be prudent to look at the enterprise value before taking the plunge, particularly in
instances were the debt component is on the higher side.
Among mid-cap companies, Amtek Auto is an interesting case. The Rs 1960-
crore company by sales, manufactures auto and non-auto components. In the auto
segment, the firm is into forging, aluminium casting, machining and sub-assemblies
segment, while it manufactures components for tractors, earth-moving, construction and
locomotive equipment. This apart, Amtek Auto has 61.64% equity stake in Amtek India.
Amtek India manufactures iron-cast automotive components including connecting
rod assemblies, cylinder blocks, flywheel assemblies and turbo-charger housing. Amtek
Auto's equity stake in Amtek India is worth Rs 1696 crore, which is over 50% of its
market value of Rs 3212 crore. Besides, Amtek Auto also holds 54.96% equity stake in
Ahmednagar Forgings, valued at around Rs 350 crore.
Not only private sector companies but even public sector undertakings (PSU)
have liquid assets bunched on their balance sheets. Consider PTC India, a PSU
established in 1999. It is a leader in power trading, holding 60% equity in PTC India
Financial Services. PTC Financial Services was awarded the infrastructure finance
company status by the Reserve Bank of India in August 2010. PTC India came out with
an IPO of PTC Financial Services in March 2011.
PTC Financial Services provides finance in the form of equity and debt to power
projects in generation, transmission, distribution; equipment manufacturers; and energy,
procurement and construction (EPC) contractors. It also extends carbon credit finance.
PTC India's 60% equity stake in PTC Financial Services is currently valued at Rs 538
crore, which is little less than one-third of its market value of Rs 1686 crore. PTC India

10. has another 100% subsidiary, PTC Energy, which is primarily into coal trading. PTC
Energy reported total income of Rs 93.8 crore in FY 2011 compared with Rs 27.8 crore
in FY 2010. It could achieve higher scale going forward.
Cadila Healthcare, with 70.24% equity stake in Zydus Wellness, is another
instance of a company with embedded diamonds. Cadila Healthcare's equity stake in
Zydus Wellness is worth Rs 974 crore. However, by percentage, the market value of
Cadila Healthcare it is on the lower side, at around 7%. Still it is a jewel considering the
fact that Zydus Wellness is into fast-growing consumer wellness products, which can be
considered as a sub-category within the fast-moving consumer goods sector.
Net sales of Zydus Wellness increased to Rs 335.4 crore in FY 2011 from Rs
42.7 crore in FY 2007, a rise of 7.8 times. In comparison, the financial performance of
Cadila Healthcare looks unimpressive. Its net sales rose to Rs 2179.1 crore in FY 2011
from Rs 1450.3 crore in FY 2007.
Grasim Industries is another example of the market not discounting its prized
equity holding in Ultratech Cement. Grasim Industries commands market value of
Rs 25242.6 crore. As against this, the value of its 60.33% equity stake in Ultratech
Cement is worth Rs 24353.4 crore. Essentially, this means if one invests in Grasim
Industries one is really paying only for the cement business. The remaining business. of
the company comes for free.
Grasim Industries manufactures viscose staple fibre (VSF) and chemicals. The
group is world's number one manufacturer of VSF, with capacity of 7,44,000 tonnes.
Ultratech Cement is among the top 10 global cement companies, with capacity of 52
million tonnes per annum (mtpa). Ultratech Cement would be investing US$ 2.4 billion
over the next three years to expand its capacity by 9.2 mtpa. The additional capacity is
expected to go on stream in FY 2014.
Similarly, Jaiprakash Associates's equity stake in Jaiprakash Power Ventures
stood at 67.93% and Jaypee Infratech 83.16%. The stakes in these two companies are

11. together valued at Rs 13092 crore compared with the market value of Jaiprakash
Associates, at Rs 16894.5 crore.
On standalone basis, Jaiprakash Associates is mainly into construction and
cement. On the other hand, Jaiprakash Power Ventures is the largest private sector
hydro power producer with 1,200 MW of operational assets. Around 5,000 MW of
capacities are under various stages of development. Jaypee Infratech is executing the
Yamuna Expressway project. At the group level, Jaiprakash Associates is the third
largest cement producer in the country with 23.7 mtpa installed capacity. It would be
enhancing its capacity to 35 mtpa by FY 2012 and to 50 mtpa by FY 2013.
In November 2010, Texmaco demerged its heavy engineering and steel foundry
business to a newly formed company, Texmaco Rail & Engineering (TRE). Texmaco
has retained the business of real estate, mini hydro project, investments and other
businesses. Under the demerger arrangement, one share of TRE was issued for one
share of Texmaco. Texmaco had 30.04% equity stake in TRE on 31 December 2011.
This is valued at Rs 382 crore as against the overall valuation of Texmaco at Rs 380
crore. Even in this instance, investors in Texmaco would be getting the business of TRE
almost for free as its holding in TRE itself is equal to its market capitalisation.
With 50.06% equity stake in Rallis India, Tata Chemicals is sitting on liquid
wealth of Rs 1265 crore. This amounts to 14% of Tata Chemicals's market value, which
stood at Rs 8991 crore. Though this is not a very high percentage, Rs 1265 crore too is
not a small amount by any means. It is an icing on the cake. With manufacturing
facilities in Asia, Europe, Africa and North America, Tata Chemicals is the world's
second largest producer of soda ash. The company is also into complex fertilisers, urea,
vacuum salt and cement. Rallis India manufactures crop protection chemicals, seeds
and plant growth nutrients.
Kalpataru Power Transmission, the last bet on companies with liquid wealth, has
67.19% equity stake in JMC Projects (India), valued at Rs 228 crore. Kalpataru Power
Transmission, valued at Rs 1665 crore, mainly manufactures power transmission

12. towers with capacity of 1,38,000 tonnes. Since inception, Kalpataru Power has installed
14,000 km transmission lines and 9,00,000 tonnes of towers. JMC Projects is involved
in the business of civil and structural works for infrastructure and power plants,
commercial and residential buildings, and industrial projects across the country.
In the last three years JMC Projects has not been able to ramp up its revenue
due to headwinds faced by the infrastructure industry. However, if its financial
performance over the last five year is considered, it has done exceptionally well. From
net sales of Rs 500.2 crore in FY 2007, its top line touched Rs 1373.8 crore in FY 2011.
Similarly, its bottom line improved from Rs 16 crore to Rs 41.7 crore in this same period.
Solely focusing on equity holdings of companies in listed firms as a parameter for
stock selection should be avoided. Such investment could be strategic in nature and
unlocking could never happen even in dire state of affairs. However, it could be one of
the parameters for stock selection. Ultimately what matters is the financial performance
and future outlook by revenue visibility and growth. But liquid assets on the balance
sheet could shield companies during rainy days.

13. MCX IPO subscribed 91 % on 1st Day
The Initial public offer (IPO) of top commodity exchange MCX was subscribed 91 per
cent on its first day today, as the first-ever IPO by an Indian bourse witnessed robust
demand from retail as well as institutional investors.
The shares reserved for retail investors got over-subscribed 1.5 times on the first day
itself, with bids worth an estimated over Rs 300 crore.
Besides, the portion reserved for institutional investors was subscribed 74 per cent with
bids worth about Rs 150 crore.
The IPO, which is estimated to raise about Rs 663 crore and has already seen 'anchor
investors' being allocated shares worth about Rs 100 crore, today got total bids worth
about Rs 500 crore, while bidding would continue for another two days.
The bidding began this morning for the MCX offer, which also happens to be the first
IPO of the year 2012, and would continue till February 24. The shares are being sold in
the price-band of Rs 860-1,032 a piece.
In the first day of the IPO, the investors submitted bids for about 50 lakh shares, which
accounted for 90.7 per cent of about 55 lakh shares being sold through the 100 per cent
book-building process.
A total of 12 anchor investors have already been allocated about 9.27 lakh shares at the
top-end of the price band, taking the overall IPO size to 64,27,378 shares.
Investment bankers said that the bids are largely coming at the top-end of the price
band, enthused by the demand from anchor investors at that level and the issue could
get oversubscribed multiple times. The anchor investor portion was also oversubscribed
several times, showing an unprecedented demand level for many months now as the
primary market has remained sluggish for almost a year now.

14. The total offer of 64,27,378 equity shares account for a 12.6 per cent stake in MCX and
2,50,000 shares have been reserved for eligible employees.
Based on the upper end of the price band, the IPO could raise up to Rs 663 crore.
Brokerage firm Emkay Global Financial Services said that "scalable model, ability to
generate sustainable free cash flows, healthy return ratios and reasonable valuations
provide room for decent upside and has recommended investors to subscribe the
issue."
Another brokerage house Angel Broking said, "We believe MCX being the only major
commodity exchange in India and the world's fifth largest exchange can witness strong
growth in revenue and profitability going ahead, which makes its valuation much more
attractive than global peers.
At the end of today's bidding, the portions reserved for Qualified Institutional Investors
was subscribed 74 per cent, while the retail portion was oversubscribed 1.5 times.
Edelweiss Financial Services, Citigroup Global Markets India Private Ltd and Morgan
Stanley India are the booking running lead managers of the share sale.
The promoters FTIL currently holds 31.2 per cent stake in MCX, which would come
down to about 26 per cent after the IPO.
Financial Technologies (India) Ltd, State Bank of India, Bank of Baroda, GLF Financials
Fund, Alexandra Mauritius Ltd, Corporation Bank and ICICI Lombard General Insurance
Company are seven investors who will be divesting part of their holdings in MCX.
MCX has more than 70 per cent share in the annual estimated turnover of Rs 177 lakh
crore for the entire commodity derivatives market.
Globally, MCX is the fifth largest commodity exchange, while it figures among the top
two positions in gold and silver segments.

15. It would be the first exchange in India to go public, putting the country at part with other
markets like the US, UK, Japan, Australia and Hong Kong.