The Listing of Kolkata based Nilesh and Umesh Parekh promoted Gold Jewellery House,Shree Ganesh Jewellery House Ltd on Friday,April 9,2010 has spooked everybody

The IPO was priced at the lower band of Rs 260,but listed lower and crashed to 160 levels pretty fast

……An interesting Bulk Deal caught my eye on this first day of listing itself…Standard Chartered Bank (Mauritius) Limited Emerging India Fund (SCBMLEIF) sold 531484 shares at Rs 169.23 aggregating Rs 8.99 crs

I checked the Prospectus and found that they were not part of the Pre IPO Non Promoter Shareholders…of these there were merely two…Shares were allotted in August 2009 at Rs 300,after conversion of fully convertible debentures to Bennet Coleman who ,after a 1:1 Bonus in September 2009 ,now hold 333334 shares at a cost of Rs 150 aggregating Rs 5 crs Investment and Credit Suisse PE Asia Investments (Mauritius) Limited who had invested Rs 80 crs in a CCP Issue and after conversion at Rs 300 and the bonus held 5333334 shares also at a cost of Rs 150…but now hold 3200000 shares after offering for sale shares in the recent IPO

The March 2010 Book Building IPO was made in the Price range of Rs 260-Rs 270,with Rs 260 finally fixed as the Issue Price….It was for 14269831 shares aggregating Rs 371 crs…of this  the fresh issue component was Rs 316 crs through 12136497 shares and an Offer for Sale by Credit Suisse of 2133334 shares aggregating Rs 55.47 crs

In fact SCBMLEIF also does not feature as an Anchor Investor…Of these there were three…IFCI,India Max Investment Fund and Bank Muscat India Fund who together committed Rs 65 crs for 25 lakh shares at Rs 260

The Issue was oversubscribed 1.96 times…QIB portion 1.38 times…Non Institutional Portion 6.12 times and the Retail Portion 1.39 times

So,I assume SCBMLEIF must be a FII allottee in the IPO at Rs 260….Selling off at Rs 169 levels and at a huge Loss of  nearly Rs 91 per share on the first day of listing begs the question “But Why!?”…the loss is Rs 4.83 crs as the Investment was Rs 13.82 crs

As I blog this,markets have just closed at 3.30 pm on Monday,April 12,2010 and the second day of listing for Shree Ganesh Jewellery House and it’s share price is yet Rs 163

Financials show a post IPO Equity of Rs 60.68 crs (FV Rs 10,Promoters hold 70% +)) and a Post IPO Networth estimated to be around Rs 900 crs ( Rs 481 crs at 30/9/2009 + Rs 100 crs second half profit + Rs 316 crs IPO Proceeds to the Company)…that’s a Book Value of close to Rs 150…Debt was Rs 377 crs at the half year at 30/9/2009….After recording a PAT of Rs 80 crs for the half year,the full year FY 10 PAT should be over Rs 180 crs and close to Rs 200 crs…that’s an EPS of atleast Rs 30…the Earnings Multiple is just over 5 times with the Share Price of Rs 163 and under 9 times at the issue Price of Rs 260 and the Book Multiple is just over 1

So what’s the Problem !?….can Standard Chartered Bank enlighten all of us !? SEBI,perhaps ?…or perhaps Bennet Coleman or Credit Suisse,the Pre-IPO non promoter shareholders !?….25% of the IPO Proceeds of Rs 316 that come to the company have been assigned for General Corporate Purposes….no specifics…that’s a very high component of nearly Rs 80 crs that can be spend at the discretion of the Promoters and the Management,albeit for the Company…the major proceeds will be towards the specifics of expanding the manufacturing and retail base    

IPO Allottees have been sledgehammered on Day 1 itself…..Should they also exit at a significant loss as something is greatly amiss !?…or is Shree Ganesh Jewellery House worth a Buy at Rs 163 !…just over one time it’s Post IPO Book Value ?…if you ask allotees to average,they’re going to kill you !….but one HNWI allottee I spoke to, was very optimistic and has full faith in the company and the promoters…he expects the price to move towards Rs 450…”kai karse!”….he was referring to the Promoters ! 

Clearly there was an IPO Gameplan….what was it exactly and who all are involved,is the key question !?…was SCBMLEIF part of it!?…they surely need to explain this first day sell off at a huge loss !…even Professional Stags don’t behave like this !

On January 25,2010,I had blogged of an interesting Bulk Deal..Merrill Lynch buying S Kumars at Rs 47.60

I’m not going into the Merits of Rama Pulp…it may be just all Pulp !

I leave it your judgement….this is the sequence of events

March 9,2010….I receive an unsolicited SMS,twice ,as must have thousands of others…Reproduced verbatim below

Message Details : Sender :(no name) TA-STKFANCY….Time Received : 13:15:39

Message in Verbatim: 

Buy for intraday JACKPOT: Buy RAMA PULP (502587) SL 35 Intra trg upper freez,Buy in bulk,FII buying in huge,Co contracted with WALLMART,

March 11,2010….I notice lakhs of quantities traded on March 10,2010  upto a Price of Rs 38.35 on the Bulk Deals Sement Reposting on the BSE Website…In fact seems there has been regular Bulk Deals happening in Rama Pulp this year and same Names appear in multiple Deals

In Many cases the Same names appear in Huge Buy Deals as also in Huge Sell Deals on the same day !

BSE has just closed…it’s past 3.30 pm and I check the Share Price of RAMA PULP…It has registered a High/Low of Rs 35/Rs 32.65 and closed down from yesterday at Rs 33.15 with a traded volume of 3.99 lakh shares…and interestingly a Two Week Average Traded Volume of is 12.96 lakh shares !…the Market Cap of this Company is a mere Rs 25 crs 

Be careful !…clearly seems to be an orchestrated move to seduce suckers to buy through unsolicited SMS recommendations with an objective to create a hype and market to offload huge quantity of shares by Sellers

BSE & SEBI need to figure out what’s the game here,if any, in RAMA PULP and who’s playing it, for the benefit of all Investors

In fact similar gameplans and ploys are visible in many scrips….cast a shadow over the sanctity of Trading on our Bourses…Transperancy and Credibility Issues

Among the Bulk Deals that took place last week,two interesting purchases caught my eye…..even though I’m not a great Fan of the Ruias (Essar Oil) or the Kasliwals (S Kumars)…both gravely let down shareholders and other Stakeholders in the 1990s and even into the 21st Century…there were several Corporate Governance Issues too 

• 20 Million Shares of ESSAR OIL (currently Rs 141/142) were picked up by LIC at Rs 140 on January 22,2010 in a Rs 280 crs deal….seller was Matterhorn

and

• 1.375 Million Shares of S KUMARS NATIONWIDE (currently at Rs 45) were picked up by MERRILL LYNCH CAPITAL MARKETS ESPANA at Rs 47.60 on January 20,2010 in a Rs 6.55 crs deal

S Kumars is already one of our second half 2009 SS 2 Recommendations

Essar Oil was spotted by us as a SS 3 Multibagger at Rs 4/5 in 2003/4…Over the past 6 years Essar Oil has reached the following Highs….it taught us a lesson though…If you have caught it early,Do not Sell too Early,even if you see 200% Appreciation in the same year…that would be Rs 5 to Rs 15 ! in 2004………If your’e catching a Train from Mumbai Central to Ahmedabad,do not get off at Borivali !…..Stay with a good scrip which has good to great potential  for the long term over many years and it will give you quantum appreciation…Selling off in 2004/5/6 would have given strong % returns…but not as strong as from 2007 !,even considering the decline in 2008 and 2009 

Year…….High……..Absolute % Appreciation from 2003/4 at Rs 5…..In Number of Years

2004…….33……..560 %……One Year

2005……..48…….860 % ……Two Years

2006……..80……..1500%…..Three Years

2007……..333……6560 %…..Four Years

2008……..380……7500 %…..Five Years

2009……..194……3780%……Six Years

2010 till date….162…..3140%…..Six + Years

Clearly 2007 was a spectacular Year for Essar Oil when from an earlier Year 2006 High of Rs 80 it zoomed 316 % from this High to a New High of Rs 333 in 2007 

Watch out for both these Scrips in 2010

Cheers !

Don’t get influenced and unduly excited by placements of part of their stakes by Promoters of DLF (at Rs 230) and Suzlon (at Rs 77) especially, and of TCS (at Rs 627)…..They have sold shares now as they desperately need funds and can’t raise it any other way……The Credit Crunch  and Contraction has simply overwhelmed the corporate sector

In fact you can even expect our government to sell some of it’s jewels…expect IPOs of PSUs in Q2 and Q3 this year…Even the Government desperately needs funds to fund the dangerously high fiscal deficit as it has reached saturation Borrowing Levels.

Otherwise,just ponder…..why did they not sell stakes in 2007 and 2008 when their Shares Prices were 5 to 10 times they are now !

So if a Foreign Bank operating in India was able to comfortably manage these placements,remember these were at stressed and possibly distressed prices…so there were many takers……not really prices at which the Promoters should sell !

But Desperate Times call for Desperate Measures

Saw Hemendra Kothari come on NDTV Profit today and confirm that he has sold the remaining 10% he held in DSPML to Bank of America….Some Years ago he had sold 40% to ML for US $ 500 Million…he refused to disclose at what price he sold this 10%,saying it’s an unlisted company….says he’s now 62 and wants to devote time to Philanthrophy(his family,he says,has been involved in it for years) and Environment and Wildlife Concerns…will remain as Non Executive Chairman of DSP Blackrock though…rubbished the notion that he is selling because he was apprehensive about clashing with the culture and way of operations of  Bank Of America,who has taken over ML

Years ago his DSPML refused to buyback from us shares of Namtech Systems…We had invested a significant amount.DSPML had placed these shares with us at Rs @ 55 with a promise that this Nambiar Group Company ( Nambiar was the Chief Secretary of the Karnataka Govt and whose flagship was the listed Namtech Electronics) would come out with an IPO within a year of placement and we could sell in the Markets or else they would buy back the Shares at Rs 113 if the IPO did not materialise or if the Listed price was lower than Rs 113….Those were heady times and being DSPML we trusted them,only to be let down as they dishonoured their word….When approached by us,Hemendra Kothari and the International Head of ML chose  to simply ignore and not respond and walk away from the buy back committment while Nambiar said that he had no role to play in this Buy back Committment even though we pointed out the MOU to him……It’s over Ten years now and Namtech Systems has gone kaput…no business and no IPO…Oh ! shares yet exist…Not sure of the company though !

That’s why we make icons of Narayan Murthy and Ratan Tata….whose word is their Bond  and whose Measure is not measured just by the Money ! 

It’s not that Reliance Capital Mutual Fund always does exactly the opposite of what Indiabulls recommends !

United Breweries (UB) was recommended to sell at Rs 90 by Indiabulls with a target price of Rs 70,citing high Leverage and margin pressures

Reliance Capital Mutual Fund and another Fund,Indea Absolute Return Fund ,actually went ahead and purchased 1.5 million shares and 1.3 million shares respectively of UB on February 27,2009,last week for Rs 75 in Bulk Deals of Rs 11.25 crs and Rs 9.75 crs respectively 

It’s just that the Beauty of Equity and Diverse Views in it come into Focus…with such mixed view,who do you follow !?…..Follow what you have conviction in and what appeals to you rationally and logically…Some basic sense of Earnings and Assets Valuation is warranted as Share Price is often skewed around this….. this will also help you to do some of your own basic homework and basic research to build up a well informed view with better conviction.

This is a gist of the Conference call that Larsen organised today to justify and clarify the 12% stake in Satyam

• L&T management clearly stated that L&T is no longer just an E&C company. It’s businesses span a range of activities in manufacturing as well as services, including heavy engineering, manufacturing,  power, process engineering and financial, IT and engineering services.
•  L&T Infotech, with revenues of US$400mn in FY08, has been in the IT services business for 10 years and hence, the acquisition of a stake in Satyam is not an unrelated diversification for L&T.
• L&T acquired the 1st tranche of 3.95% stake in Satyam after the announcement and subsequent cancellation of the proposed acquisition of Maytas Infra and Maytas Properties by Satyam, but before the news of fraud by Ramalinga Raju was announced. The average market price of Satyam at which the stake was acquired was Rs 174/share.
• The 2nd round of acquisition of ~8.09% was completed on January 23, 2009 at an average price of Rs 34.share. L&T now holds a 12.04% stake in Satyam, at an average price of Rs80/share.
• The initial stake was acquired with an intention to form a strategic alliance with Satyam for targeting clients jointly, especially in areas where L&T Infotech and Satyam were competitors.
• On disclosure of the fraud by the ex-Chairman of Satyam, L&T decided to increase its stake with a view to preserve the value of the already acquired stake and to have a say in any major action the new Board of Satyam would decide about the company’s future
• L&T’s decision to acquire the additional stake was based on its assessment (and feedback from various stakeholders in Satyam) of Satyam’s demonstrated track record, trained manpower and valuable client relationships.
• L&T believes that major clients are unlikely to terminate contracts for two reasons - one, most clients are satisfied with Satyam’s services and would likely continue if issues of governance etc are addressed wby the new Board and two, the prohibitive costs of transition to new vendors.
• L&T’s decision to increase its stake was also in part, influenced by the knowledge gained that Satyam did not have any debt on its books and all its properties were mortgage free and that Satyam has in its possession, 250 acres of land with clear titles.
• On potential/contingent liabilities, L&T management is reasonably confident of no material impact of the UPaid case on Satyam. However, the management is yet to assess the impact, if at all, the class action suits filed against Satyam in the USA.
• L&T has acquired the 12.04% stake in Satyam through L&T Capital, which is the designated vehicle for acquisition of all such strategic stakes.
• The other strategic acquisitions made by the company in the recent past include NIIT Technologies (~5% stake to access markets in Europe where NIIT has a strong presence) and Kalindee Rail Nirman Engineers (~14.5%, to leverage Kalindee’s capabilities in EPC and allied services for Railways).
• The management clarified that the Satyam acquisition, being strategic in nature, L&T Capital will not be providing for any MTM losses in its books.
   
  

An immediate Scenario comes to my Mind ! and Questions on this too!

Mr Naik,you stated today that with 5% to 6% that you had in Satyam and Ramalinga Raju’s 5% to 6% you both can venture together for more Business….. Questions that arise

• From who have you bought the initial 3.95% stake in Satyam?
• Was this acquired stake the pledged shares of Ramalinga Raju and other promoters !?
• In this case did you or anyone in Larsen & Toubro Group talk to Ramalinga Raju or other promoters or even to the Lenders to Raju before you acquired this stake !?
• Were you given this assurance of a joint venture or marketing for Clients by Ramalinga Raju or Satyam or anybody representing them!?.. surely it could not be a unilateral thought from only your side!… if there was a dialouge then it is obvious you were being falsely led to believe alot of things and given fradulent assurances for them
• If you have acquired the Pledged Stake then do you not realise that Ramalinga Raju and his co-promoters stake will go down by this extent of 3.95% to a very minimal Percentage !?, in which case how can you state that both of you would be holding 5% to 6% and venture for new clients together !?
• Did Ramalinga Raju actually await the closure of this sale of 3.95% Satyam Stake to Larsen by January 6,2009 before confessing to Fraud on January 7, 2009 ?  

The More I look at it, it clearly seems that Larsen actually bailed out Ramalinga Raju by buying 3.95% stake at an average of Rs 174 ! Why !? 

Also you state, Mr Naik that you are taking a calculated risk by increasing stake to 12% in Satyam… Larsen is a strong core Indian Icon… why does it need to take such a calculated risk now!?… Can’t Larsen await some clarification on the Class Action Lawsuits filed in USA before commiittng more and more Hundreds of Crores to Satyam?

While Satyam has soared by 20% to Rs 46 today on the back of Larsen support, the Share Price of Larsen has turned even more negative to Rs 633… I reiterate, Mr Naik, as I did in my Blog on January 24, 2009 on Larsen and Satyam, please don’t make Satyam an Ego Issue and don’t keep on pouring good Larsen monies after Bad !… unless you are able to assess with a great degree of certainty and comfort, the quantum of claims that may arise because of the US Class Action Suits against Satyam

On January 9,2009 I had blogged that Larsen has jumped the Gun in Investing in Satyam and has lost over 85% and over Rs 300 crs in just two days after Ramalinga Raju’s confession on January 7,2009

Check it out again.Click on http://www.gauravblog.com/?p=431

I had even suggested a possibility that Larsen had picked up the Satyam Promoters pledged shares sold by Lenders…and perhaps Ramalinga Raju awaited this sale before making the Confession

A response to this blog that there could be a possibility that one of the Lenders was related to one of the Directors of Larsen and this Lender was bailed out by Larsen Monies by buying out their Pledged Shares got me thinking

I checked the Larsen & Toubro Annual Report and found that the Whole Time Director & Senior Executive Vice President and CIO in charge of IT and Technology Services is one Mr V K Magapu….Larsen’s Investment of over Rs 400 crs by purchasing 2.69 cr shares to take a 4% Stake in Satyam,even after the Satyam -Maytas Controversy was still burning,despite reversal of the proposal,defies Commonsense and Sanity.As CIO and in charge of IT and Technology Services,Mr Magapu surely must have been involved in recommending this Investment…Why ! ?….On Confession by Ramalinga Raju on January 7,2009,Larsen’s Investment in Satyam eroded over 85% in just two days and Larsen is now sitting on a Notional Loss of over Rs 350 crs !

Chairman & Managing Director of Larsen & Toubro,Mr A M Naik must have slept well only till the night of January 6,2009….he ’s been desperately trying to save his Investment in Satyam by offering to buy out Satyam ! He’s galvanising support from Institution shareholders like LIC and even the Ministers and is making a presentation to the New Board of Directors of Satyam today and tomorrow

What Timing ! Mr Naik just received the ET Business Leader of the Year Award last week and this Satyam Loss !

Naik needs to explain why did Larsen,perceived by all as being responsible, conservative and risk averse in it’s operations,dare to venture into controversial Satyam by buying shares from December 23,2008 to January 6,2009…Do Vested Interests exist? Also why this turnaround now !? After Ramalinga Raju’s Confession on January 7,2009 Mr Naik came on the business channels to assure that Larsen was merely an Investor in Satyam and had recently got a 4% stake and had no plans to buy it out or increase it’s stake !

The Irony is that Larsen,to save it’s Investment in Satyam,is going the whole hog to buy it out itself !…This would mean taking a controlling stake in Satyam…although Valuation would depend on restated accounts of Satyam,my guess is that Larsen would have to put in an additional Rs 1000 crs into Satyam ( 35 crore Nos of Shares @ Rs 30)…they need to take Larsen Shareholders into confidence before doing so !

The Problem, the way I see it and also blogged about in my recent blogs, is how can any Potential Buyer protect itself from Contingent Liabilities that are arising from the class action suits filed by ADR Investors in USA against Satyam …If succcesful,the claims would run into Hundreds of Millions of Dollars

In an earlier Blog I had suggested that,subject to legal diligence, a seperate Company be created and Satyam Clients and genuine employees be shifted to it and Satyam Shareholders be given free shares in this new company in proportion to their Satyam Holding…The New Company would not be exposed to the Class Action lawsuits in USA…In this current form Satyam faces colossal Liabilities ahead and in may just lapse into a Coma ! 

Now we know that over 10000 of the 53000+ Employees simply did not exist !…My Blog on Nature of Possible Accounting Entries assumes this too !…..so the new CEO and CFO will have to deal with a less number of Staff atleast !…some consolation ! 

Oh ! and By the Way,it’s not just Larsen who wants to buy out Satyam…there are a host of interested Buyers out there showing interest…but they need clarity and protection from futures liabilities….Satyam is reflecting this Interest by climbing back towards Rs 30…yet a far cry from Rs 250 levels in Mid December and even Rs 175 on the morning of January 7,2009

If somehow our Government and Legal Eagles work out some protection from future liabilities for those who Buy Out Satyam,you can surely expect Satyam share Price to spurt even more 

On restatement of accounts,surely the networth of Satyam will be in negative territory…it would be interesting what would then be it’s Valuation at which a Potential Buyer,like a desperate Larsen, will bid.

AM Naik is clear…the buyout of Satyam has to be decided now…a month or two down the road it may be too late to salvage and save Satyam as it would have lasped into irreversible Coma and Larsen may lose all of it’s Investment of over Rs 400 crs in it

Mr Naik,it was a foolish and stupid of Larsen to Invest in Satyam,knowing the controversies in it…..Now,if you are unable to get protection from future liabilities of Satyam,it would be even more foolish to pursue a buyout as you would be taking a huge risk by investing more Good Monies of Larsen after Bad and your Shareholders will not forgive you…Your share price has already reflected this worry by crashing in days from over Rs 800 to test Rs 700…It may crash further if you risk further exposure to Satyam in an attempt to salvage your current Investment of over Rs 400 crs in it already !…averaging to buy out Satyam now at lower levels will work only if there is 100 % certainty that Larsen will not be exposed to Satyam’s  risk of Hundreds of Millions of Dollars of Contingent Liabilities materialising in claims….As of now,I can’t see how exposure to this Contingency can be avoided with any degree of certainty  !  

Hey ! Times of India’s Mumbai Edition has this Headline Today

Did Raju tip off big lenders ? 

Thanks TOI….you reach out to Millions…..I raised this Issue too on my blog on Thursday,January 8,2009…Check it out Below

http://www.gauravblog.com/?p=426

NOW TWO MORE SERIOUS QUESTIONS EMERGE IN THIS SORDID SATYAM SAGA UNFOLDING!

Now Two More Serious questions need to be answered in this continuing Satyam Saga !

QUESTION NO 1

DID RAMALINGA RAJU INTIMATE LENDERS TO SELL HIS PLEDGED SHARES BEFORE RELEASING HIS CONFESSION LETTER TO REALISE A BETTER PRICE TO CLEAR MORE OF THE LOAN ? 

OUESTION NO 2

NOW WE KNOW WHY THE MAYTAS PROPOSAL WAS STRUCTURED THE WAY IT WAS ! QUESTION IS WHICH ‘BIG FOUR FIRM ‘ CONNIVED WITH SATYAM TO BRING UP THE VALUE OF THE MAYTAS DEAL TO US $ 1.6 BILLION ! TO MATCH THE SATYAM ASSET HOLE ?

Also raised the worry on my blog on Friday,January 9,2009 that Larsen’s Fatal Investment in Satyam from December 23,2008 to January 6,2009 could be their lifting the same Promoter pledged shares sold by lenders

Check it out on

http://www.gauravblog.com/?p=431

 

Larsen Jumps the Gun in Buying 4% into Satyam and sees Big Erosion of over 85% and over Rs 300 Crs inside just Two Days !…they must file an FIR against Satyam and it’s Chairman,Ramalinga Raju

Larsen was probably ill advised to buy a 4% Stake in Satyam at undisclosed price…Definitely over Rs 100 asY.M. Deosthalee told Dow Jones Newswires by telephone that the company acquired the stake over ten days ending Tuesday through its L&T Capital arm.

Larsen now holds close to 2.70 crore shares in Satyam at Investment cost of over probably  between Rs 350 crs to Rs 450 crs….On Wednesday,January 7,Satyam opened at Rs 175 but closed at Rs 40 after Ramalinga Raju’s Confession of a massive Fraud…Today Satyam has sunk even lower to Rs 20…Larsen’s holding in Satyam is worth just Rs 54 Crores inside days…It has lost over 85 % and @ over Rs 300 crs notionally inside two days !…it will have to mark the investment to market

There is also the grave posssibility that L & T Capital may have picked up the same 4 % of Equity sold by the Lenders to Ramalinga Raju on his pledged shares…If this is so,then Ramalinga Raju may have awaited this sale at High Prices before releasing his Confession Letter on January 7,2009

Larsen must not let Satyam and Ramalinga Raju get away with this ! 

The Share Price of Larsen has also eroded by 15% to below Rs 700 in quick time