Happy 20-X…..India rocks !….and so will 2010 for all of you….may all your stock selections become 20-X multibaggers !

I blog yet again after reviewing it’s latest financials

Performance of BSE

BSE has posted it’s half yearly performance at September 30,2009 on it’s site

The results are dated December 5,2009 and signed by the MD & CEO ( no name !)

Here’s the long and short of the audited numbers for the Half Year Performance at September 30,2009

• It has earned a lower net of Rs 113 crs in the first half of FY 2010 against Rs 117 crs in a similar period last year…For Full year 2009 it had earned Rs 213 crs
• The Total Income was higher at Rs 256 crs against Rs 214 crs…Full Year 2009 Income was Rs 421 crs
• The Exchange depends significantly on Income from Trading Members and from Investments and Deposits…these are 30% and 54% of Total Income respectively…an aggregate of Rs 84%
• The bonus enhanced (12:1) Equity is now Rs 10.29 crs from just 0.79 crs last year…Face Value is Rs 1
• The adjusted EPS is Rs 9.86 against Rs 10.34…Full Year 2009 EPS was Rs 18.67
• Reserves were Rs 1718 crs at March 31,2009 and would have moved up past Rs 1830 crs with this half year profits in the current year
• The Book Value would thus compute to Rs 169 at March 31,2009 and currently moves up to Rs 179

Valuation of BSE

The long awaited Listing of BSE is ,well,yet awaited !…BSE even issued a 12:1 Bonus to bring the Equity Capital to above Rs 10 crs as this was the minimum required for a Listing on the NSE

BSE had wished to list it’s shares on it’s own Exchange without an IPO, while SEBI is insisting on an IPO 

So what should be the Value of the BSE’s Share ?

On an Earnings Multiple basis an EPS of Rs 20 for FY 10 and a 20 Multiple would indicate a Value of Rs 400….On an Assets Basis and a Book Value of close to Rs 190 and a Multiple of 2,the Value would be Rs 380 

For all those who Bought BSE Share at Rs 5200

A few years ago,when Mr Rajnikant Patel was the MD of BSE,Member Brokers were invited to tender any part of 10000 shares allotted to them when the Exchange became a Company.The Price fixed was Rs 5200.These shares were then placed with overseas Bourses and Institutions.

Many Share Brokers tendered 4000 to 5000 shares and received upward of Rs 2 crs for the sale and many got out of financial troubles they were experiencing.

Adjusted for the Bonus of 12:1,the buyers of these shares at Rs 5200 now have a holding cost of Rs 400

The Current Performance indicates such a Value as opined above…so they would be happy to have atleast recovered their cost price,albeit even notionally in value

For those who did not sell any shares,the original 10000 shares allotted to them have now gone upto 130000 shares because of the bonus…At the Value of Rs 400,these are now worth Rs 5.2 crs…and the hypothetical Market Cap of BSE’s Equity of Rs 10.29 crs (FV Rs 1) would be Rs over Rs 4100 crs

Peer Valuation:Comparing with London Stock Exchange 

If we have a look at the Share Price of the Listed, London Stock Exchange on it’s own Exchange we find it is just over 710 p ,at a P/E of just under 10

If we use this Comparative 10 Multiple for BSE,then the Value of the BSE Share would be halved at Rs 200 only…that’s a hypothetical Market Cap of just over Rs 2000 crs an would mean that those who acquired the Share at Rs 5200 and have an adjusted holding cost of Rs 400 would be losing half their monies

Methinks,that BSE is in Emerging India with great potential and desrves a better Earnings Multiple than the 10 that LSE gets…I have taken 20 above…seems fair…optimists would argue for a yet higher multiple…I would have some reservations on this optimism….as the competition is heating up and MCX is ready to launch it’s own Stock Exchange…and more than BSE,it has been MCX that has emerged as a serious competitor to the leader,NSE…Derivatives Trading has been a Non starter at the BSE,despite several attempts to revive it

So if someone is offering the BSE Share to you at Rs 200-Rs 250,it’s interesting…not at Rs 400 though…the wait for Listing could be late into 2010 at that too at the earliest !

BSE was born in 1875…135 years ago….it’s tough and will survive….hope the new top team …Indians imported from USA…..delivers on all fronts…particularly on Corporate Governance

My Wife is back… after a week with her parents !… I picked her up this morning and when she got off while I parked, had to remind her we stay on the fourth floor !

And as if in great welcome, our House Clocks in the Living Room and Bathroom stopped working !..I told her they were actually protesting….. My Wife is simply  a stickler for punctuality, while I tend to puncture it at times !… she lives by the Clock !… 8 am must mean 8 am and not 8.05 am !

And strict instructions have now gone out to our Maid !…. Lunch packed for Office must be only ’Kurmura” (Gujjus call it ‘Mamra’) … we use it in ‘Bhelpuri’… Rice puffs for all you English buffs… Australian Fast Bowler, Glenn Mcgrath and I now have something in common…our nicknames ‘Pigeon’… he for his thin legs and I for what I eat for Lunch !… It’s for your own Good, says she with unarguable finality… wholesome and healthy !

I could not help but remember Gabriel Betteredge, Lady Julia Verdiner’s house steward in Wilkie Collins 1868 classic ’The Moonstone’… When deciding to marry his housekeeper, Gabriel seeks his mistress’s opinion justifying that ”It will be cheaper to marry her than to keep her !”… to which Lady Verdiner had laughed and replied that she did not know whether to be shocked at his language or his principles !

Dear Gabriel, Marriage is more expensive !

And No, Darling ! I never thought of you as a Housekeeper at all ! How dare I !

And today is your Day… as is every day !

And I was only joking when I cribbed that Zoey, our new dog, has replaced me in your affections !

What’s that you said !? ‘Kurmura’ for Dinner too !…. Please !

This Guy takes the Cake !…He’s now heading the PMS for a Broking Company,having moved to it from another…Though he began his career as a business journalist

Nothing Personal…..but when you come on TV on the Stock Channels and express your stock views you will influence thousands who are viewing

I normally don’t judge or post critical observations on others unless I’m really angry and have made a generous allowance to respect the views of another…and this blog does serve the purpose of directing the Investor to Be Aware and BeWare,both

This is a sample of what he advised today and my tongue in cheek comments are in red italics !…

I daresay,this Guy is going to lose money for himself,his Firm and clients if he acts on his own advice !….This Advisor needs an Advisor !

The idea is not to belittle this Guy,but to urge viewers to think rationally when considering any advice…there has to be sufficient depth in the thinking process and the assumptions that forms the basis for the advice…otherwise it’s merely hollow and of the cuff advice…Of course it is always in your discretion to agree or disagree.  

For you out there,It’s safer to switch channels when you sense any irrationality on the screen when views are being expressed and that too aggressively ! 

I liked his Tie though !

I hope you blog regulars out there are enjoying this great run in

Aftek (from Rs 6 to Rs 17.75 and climbing),

Firstsource (From Rs 9 to Rs 28 and climbing ) and

IFCI (From Rs 22 to Rs 53 and climbing)

All have soared again today

Enjoy

Just saw the mandatory detailed Q 3 Results of B.A.G Films and Media Ltd given by the Company in the Sunday Edition of Business Standard

It has earned just Rs 16 lakhs in Q 3 in the three months to December 31,2008 but has capital deployed of Rs 185 crs….with Rs 29 crs in Audio Visual Production and Rs 5 crs in Movies and the bulk of Rs 75 crs shown deployed in Leasing and Rs 76 crs shown as unallocated

As is required the results also show the Funds Utilisation of the various Preferential Issues.

One of the Preferential Issues was of Rs 26.33 crs raised by the allotment of 20250000 Equity Shares(17.95% stake) of FV Rs 2 at a Premium of Rs 11 to Sameer Gehlaut…He  is one of the promoters of IndiaBulls

Now this rung a strong bell.

This Issue in 2007 had raised the spectrum and strong suspicion of Insider Trading by the Husband & Wife Promoter Couple of B.A.G.Films,Rajiv Shukla and Anurradha Prasad…Mr Shukla is on media channels virtually every other day giving some sound byte or the other,either in his capacity as a leading functionary of the BCCI (India’s Cricketing Body) or of the Congress 

This is what had transpired two years ago in January 2007 and there has been no Investigation or clarification,either by BSE or by SEBI,despite their awareness.

Promoters,Chairperson & Managing Director,Anurradha Prasad and Director, Rajiv Shukla purchased shares of BAG Films on Jan 3,8 and 9,2007 before the Board Meeting on Jan 15,2007 to consider preferential allotment at Rs 13 to Sameer Gehlaut (promoter of IndiaBulls).Aggregate of 611283 shares were picked up,with the bulk of 567583 done so by Mr Shukla.These shares had been picked up from secondary market purchases between Rs 9.16 and Rs 12.45

On Jan 17,2007, BSE uploads their notice for the preferential allotment on the website

Price on Jan 17,2007 crossed Rs 20 and closed around Rs 19  …Price had doubled inside two weeks and volumes exploded.From the January 2007 high of Rs 23,the share price zoomed to a high of Rs 104.90 in the same year in November 2007

Those who suffered are the poor sellers in the first ten days of January 2007 at these prices of Rs 9.16 to Rs 12.45 as they were unaware of  what was unfolding!

 Ironically the company had send BSE notices for the promoter acquisition under  Regulation 13 (6) of SEBI (Prohibition of Insider Trading) Regulations, 1992  and BSE site shows these uploaded on Jan 10 and Jan 15,2007

The share price has now touched a 52 week low of just under Rs 13 from a 52 Week High of Rs 61….What goes round must come round ! 

The shares have not yet been sold by the Promoters and they have also exercised their option to convert One crore Warrants into Equity Shares at Rs 13/share in two tranches…these warrants were issued to them along with the preferential allotment to Sameer Gehlaut

However this is poor consolation for those over 5000 shareholders ( assumed,as Shareholders dropped from over 23000 as on December 31,2006 to @ 17600 as on March 31,2007)  who sold off the share cheap in the first ten days of January 2007…Wonder why these shareholders did not raise a stink…or if they had tried was their effort scuttled ?

My clients too had Invested in BAG Films on my advice based on Interesting Developments of IDBI Investing in a subsidiary and the potential of the FM Radio License in the Subsidiary…However when Jan 2007 events happened I told them that the Share Price will definitely surge but I would appreciate if they exited the stock as I was not inclined to support any Insider trading scenario…Taking an Investment Risk on a Research Call is one Issue…Insider Trading is quite another….all clients exited BAG Films in January 2007 itself

Other Big Preferential Allotments by BAG Films were made in 2007 and 2008 as below

• 9400000 shares (8.33% stake) to FID Funds Mauritius Ltd at Rs 60.15 to raise Rs 56.54 crs
• 13078000 shares(11.59% stake) to High Growth Distributors Pvt Ltd at Rs 20 to raise Rs 26.16 crs
• One crore warrants to promoters with the option to convert to equity at conversion price of Rs 60.15…only mandatory upfront payment was made of 10%…that is Rs 6.015 per warrant or Rs 6.015 crs…Warrants are yet outstanding and will surely lapse as option may not be exercised as current share price is below Rs 13 

The Results published in Sunday’s Business Standard disclose that Rs 113 crs or over 88 %  of funds raised have been utilised for Expansion in the Field of Media Entertainment,including Investment in Subsidiaries and Bank Guarantees…no real specifics given and I sincerely hope these phrases are not just euphemisms !

Would be interesting to see if any of the promoter shares are pledged…they would have to disclose this now under new SEBI directions 

Competition is tough in the Media Field and with these challenging times with Business Slowing Down,it is unlikely that BAG Films and Media will perform well

Reserves at @ Rs 150 crs and an Equity of Rs 24.56 crs (FV Rs 2) may indicate a Networth of close to Rs 175 crs and a Book Value of @ Rs 15…but do remember these Reserves have been largely created by High Premiums on the Preferential Issues and not by Operating Profits and we know really how productively these have been deployed !

When there exists some unanswered questions on Promoters and Management’s Intent and Gameplan ,why even go to the next stage of assessing the Business Model and Financials to try and arrive at any Valuation based on potential and prospects

Having said this I was intrigued to see that Number of Shareholders as on December 31,2008 has actually moved up smartly to 31247 from 22591 just a year ago as on December 31,2007.Further Investigation shows the Incremental jump is in the Jan-March 2008 quarter when shareholders moved smartly to 29641 as on March 31,2008…so it would clearly seem there are atleast 7000 shareholders who entered BAG Films in the High Price Range of Rs 80 to Rs 90

Atleast we cannot accuse the Promoters of exiting at these High Prices a year ago in january 2008 !

Market is truly a Great Leveller !

Thx Anup for your response in the earlier Larsen Blog where you also requested for my view on Firstsource Solutions as it’s share price sunk to Rs 9.75,below face Value of Rs 10 for the first time ever 

I hope this blog gives you some clarity on this Company

It was clearly an Opportunistic IPO at a Heavy Premium in Bullish Times….Despite a Networth of just Rs 100 crs,excluding Goodwill,Firstsource Solutions managed to raise Rs 384 crs ,offering shares at a Price that was nearly 30 times the Earnings

Even the Objects to the Issue were General…Rs 180 crs for Acqusitions that were yet to be identified,Rs 45 crs to repay a Loan from ICICI Bank.Rs 46 crs for creating New facilities,Rs 89 crs for General Corporate Purposes and Rs 24 crs for Issue Expenses 

Two years ago on January 29,2007, ICICI Group promoted,Firstsource Solutions, came out with it’s IPO at Rs 64 ( Face Value of Rs 10 + Premium of Rs 54).IPO Size was Rs 443.50 crs with a fresh issue of 60 million shares and an offer for sale of 9.3 million shares by Promoter, ICICI Group 

The issue received an overwhelming response and was oversubscribed 40 times….with the QIB Portion @ 71 times,Retail portion @ 11 times and Non Institutional category @ 40 times

It was listed at Rs 90 on February 22,2007 and reached a high of Rs 93 on May 15,2007…Since then it has drifted lower and lower….As of December 31,2008,It’s Shareholder Pedigree boasts the likes of ICICI Bank Promoter group ( 26.74% stake) and Aranda of the Temasek Group,Metavante,WestBridge,Galleon Group,Seacrest ( collectively holding 55.33%)

What has hit this pure play BPO Outfit ?……It’s simply the FCCB Exposure of US $ 275 Million and the effect of the Rupee Depreciation on it that is causing the sickness

The company has adopted AS 30 in FY 09 from July 1,2008 much before it becomes mandatory in FY 2012.It has designated the FCCB as a Hedging Instrument for it’s Net Investments in Non-Integral Foreign Operations.This requires it to debit any translation loss on the FCCB in event of the Rupee Depreciating to  a specially denominated Transalation Reserve and not through the Profit and Loss A/c…However the difference between the Fair Value of the Debt and the carried Value should be written off in the P & L A/c.Also any premium or discount on Forward contracts on hedged positions should be routed through the P & L A/c .Premiums to be paid on redemption have to be amortised over the life of the bond against the Share Premium Reserve 

The Financial Structure of Equity and Debt begs Inquiry.Equity at Rs 428 crs is too high to service…this company has not paid dividend right since incorporation in 2001 as ICICI Infotech Upstream Ltd and later ICICI OneSource Ltd before being rechristened yet again to it’s current name.The Exposure Quantum of US $ 275 Million to FCCB clearly was too risky…a risk which is playing out nightmares now with a weak rupee

It is astonishing that such a situation should arise given the financial acumen and experience of Promoters and Foreign Investors…reflected in the Board of Directors too !

In FY 09,in the first quarter ended June 30,2008,the company wrote of Rs 80 crs through the P & L but in Q 2 ended September 2008,as it adopted AS 30,it created a Rs 108 crs Reserve Debit for the fx translation of FCCB outstandings.It had a hedged position of US $ 145 million at around Rs 42/43 while Dollar zoomed to Rs 47…It’s now Rs 49 so expect some more debit in Q 3,results of which are round the corner

These  Fx related debits have wiped out Reserves substantially….Standalone results at September 30,2008 showed an equity of Rs  428.19 crs and Reserves at Rs 202 crs (consolidated is Rs 312 crs)…The IPO had added Rs 300 crs to the reserves( 60 million shares * Rs 54 Premium less Issue Expenses of Rs 24 crs) which have got depleted on the books by the Fx Translation Loss Entry 

For the half year ended September 30,2008,the PAT,before Fx adjustments ,was Rs 56 crs..It converted to a Loss of Rs 22 crs after the adjustment…Last year in 2007/8,the company notched a Profit of Rs 150 crs,before Fx adjustment and 130 crs after adjustment

The Company is struggling to earn Rs 100 crs this year,before Fx Adjustments…an EPS of Rs 2 and a Multiple of 5 gives Rs 10…Even the Standalone Book Value is below Rs 15

Pre IPO the Networth was Rs 654 crs of which Goodwill on consolidation was a whopping Rs 542 crs…Between 2003 and 2006,several acquisitions were made where the considerations paid were higher than the Book Value of the Companies that were acquired.Book Value was Rs 18.35/share

Post IPO the Networth crossed Rs 1000 crs and Rs 24/share…only to now drop below Rs 15

The company is facing collection and declining business pressure in the BFSI Segment,while business is stable in the Telecom & Media and Healthcare Segments

Allottees,who yet hold the share are stuck with the holding cost of Rs 64. Galleon ’s cost for 20.8  million shares  is Rs 62,while Aranda (Temasek) averaged Rs 22.46 for it’s 91.92 million shares,Metavante averaged Rs 35.12 for it’s 85.77 Million Shares and WestBridge(Sequoia) averaged an initial Rs 20.90 for it’s 38.98 million shares…All continue to hold the shares,except that WestBridge sold off half it’s holdings to probably make the other half free

It is rather amusing that we are making a call on this stock on our view of Rupee Movement against the Dollar and the Pound and less on the Business potential and prospects

If the Dollar surges yet towards Rs 60 in 2009,then it will be RIP for Firstsource Solutions ! But if the Dollar again recedes to Rs 42,then the Share Price of Firstsource Solutions will move up smartly to Rs 25+

The risk is magnified if the Rupee weakens even by 5% this year against the dollar

Don’t sell off Firstsource Solutions…In fact looking at the Pedigree, and despite weakening fundamentals,this falling share price may present an opportunity to Buy…however do not be in any hurry to average or initiate buying…macros and micros continue to look bleak.

Q3 results are around the corner and they may be worse than Q2…let’s await them as also how the Board and Management intends to tackle this FCCB Menace and what sort of revenue and profit guidance it gives…These 6.75% Bonds are to be redeemed in 2012.Option to convert at Rs 92.30 is unlikely to be exercised…Company does not have enough liquidity comfort to consider buying back these FCCBs at discounted rates

I’m going to keep Firstsource Solutions on my Radar 

For Reliance Industries’s Q 3 Profits for the Q ended December 31,2008,few estimates were over Rs 3500 crs…some were even below Rs 2700 crs and the consensus revolved around Rs 3000 crs

Despite an expected drop in Margins,Revenues and Profits to reflect challenging times,Reliance,true to form,showed a respectable profit of  Rs 3501 crs in Q 3 against Rs 3882 crs yoy,supported by an increase in Other Income from Rs 241 crs yoy to Rs 641 crs

Gross Refining Margins are US $ 10/barrel.Cash and Cash Equivalents are Rs 28500 crs.Revenues are split 37% and 63% between Petrochemicals and Refining

Reliance may fail to notch an EPS of Rs 100+ for FY 2008/9 on fully diluted equity of Rs 1580 crs as it is unlikely to notch up profits of Rs 16000 crs for the full year.Gross Refining Margins and Quantum,if any,of Hedging or Speculative Loss on Oil Price Plays holds the key for profits that will be reported  for this Q 4 

Back of the Envelope Valuation on Earnings Multiples

Unless we are confronted with a shock on Derivative Losses on Oil Price Plays,even if camouflaged as Higher Cost Inventories,the likely EPS for FY 09 would be in the Rs 90 to Rs 95 range.At Rs 1136 closing today,the multiple would be @ 12.With expectations of Krishna Godavri Basin Gas contributing to revenues and profits from FY 10 and without much equity dilution,the Forward EPS estimates for FY 10 revolve around Rs 115…Applying a Multiple range of 7-14,the Share price Range in 2009 should be Rs 800-Rs 1600 and will depend on prevailing seniment and Earnings in FY 10.For Reliance to race away back towards Rs 2000 in 2009,a better sentiment has to prevail in the Markets to facilitate a higher multiple than 14…this is unlikely to happen anytime soon

Looking at the Downside…if the Sensex,currently has gone yet again below 9000 and is at 8800 levels, seeks to sink even below 7000 sometime in 2009,then Reliance will fall in sync towards Rs 800 with forward multiple falling to 7…unless global markets get hysterical and unless Reliance shocks with some significant scam,I don’t see Reliance below Rs 800 in 2009 or above Rs 1600 for that matter.It closed at Rs 1136 today.Results came in after market hours,so expect some rally tomorrow.   

Educomp appears to be a victim of Bear Market Manipulation…After Satyam,the Markets have been expecting some more companies to be exposed….So when the Daily Pioneer came out with an adverse story on Educomp and it’ Promoters,the Share price simply collapsed to a low of Rs 1375 yesterday from above Rs 2100 on January 19,2009…Check out this story on

http://www.dailypioneer.com/151227/After-Satyam-Educomp-under-scanner-for-fudging-accounts.html

The journalists have raised questions on a host of issues…one of them is that the Promoters have made a lot of money by trading in their own shares between 2006 and 2008

First and Foremost it is not illegal for a Promoter or Top Manager or Director to reduce his Holding.A M Naik,CMD of Larsen,Narayan Murthy of Infosys….they all have sold off some part of their holdings to arrange Funds that they may have needed or to balance their portfolios …it may also have been that they may have thought that the Share price had run away too much ahead of Fundamentals and so they took advantage by selling…There is nothing wrong in this,unless it is out of the Ordinary

In this Context,Educomp’s head,Shantanu Prakash has come forward on business channels and frankly answered a lot of questions…he has also lodged a complaint with the Economic Offences Wing that somebody is out to create panic for Educomp Share prices and is spreading rumours to bring the Price down

If you recall,a few months ago,ICICI Bank share Price too had tumbled overnight and MV Kamath had filed a Complaint with the Police as well as with SEBI that some sub broker had send out 30000 smses bearing adverse new of ICICI Bank…The objective was that a ‘cartel’ wanted to bring the Share Price down…SEBI investigated but reported that there was no evidence of such a wrong and illegal practice 

Interestingly Wall Street Journal just carried a topical article that warns that White Collar Crimes may jump significantly this year as economic and financial market turmoil lead many to deviate from moral and proper activities to keep up the revenue stream or make a quick buck.

It refers to a ‘Global Fraud Report’ just released by New York based Risk Consultancy Firm,Kroll Inc.It warns of unscrupulous form of short selling where brokers and traders form ‘loosely organised cartels’ to start negative rumours about a company whose shares they are betting against

What happened or is happening to Educomp may just be this !

Top FIIs are supporting Educomp and one has even set a target of Rs 4400 for it !It has recovered strongly by 15% today to Rs 1790 from a closing of Rs 1535 yesterday

Watch out for some other Company now…the List of F & O Companies may be the Pointer as short selling is facilitated in these companies…Watch their Open Interest Numbers Daily !  

What’s Cooking ?

Was hosting a top Citibanker ( on his way out), last night at a Club in South Mumbai and greeted the Vice chairman of an ADAG Company at the reception….later in the Night he was one of the citizen panelists on a TV Debate on a leading News Channel on the Recent Terrorism Strike in Mumbai….I had given him my ticket for Shiamak Davar’s ‘I Believe’ Concert earlier this year at NCPA.

What intrigued me was that he was with the Indian Lady Head of a rival and  Major Insurance  Powerhouse and who is in contention to Head the Sponsor Banking Group early next year

Her Lady Banking colleague has just switched to head the Indian Operations of a US Financial Powerhouse and who has just announced US $ 400 Million financing for rival brother,Mukesh Ambani’s Reliance group

Is the ADA Group,through this Vice Chairman, trying to woo this Lady ? If she does switch she will be out of contention for the Main Job of heading the Bank in her Group…thus leaving the top job to be snatched by the current harried Woman who is responsible for the Bank’s Operations and who has repeatedly come on Television to reassure clients,creditors and shareholders that all is well with the bank 

Earlier this Vice Chairman was heading the Finance function of a leading Cement Company and is known as a Finance Wiz

Interesting and Intriguing and Insider Trading of sorts !…a lot at stake here  for many !