Union Budget 2013 ~ India is a BLESSsed Economy…

Enjoyed on the Budget Day Evening itself Feb 28,2013 addressing and interacting with a well informed audience of 400 on the Union Budget 2013 ~ on how the Government plans to make Money to tackle deficits and how we can ! ~ plan to host a few thoughts of my presentation on the company website www.jsalphaa.com and on this blog ~ covered how FM has cleverly and conveniently balanced the budget ~ also covered  the Forward Trends in Equities &  Indices & Gold & Exchange Rate & how Debts & Deficits are forcing Disinvestments & how the malaise continues on our exchanges and it will be some time before the retail investor comes back,if at all ~ spoke on Liquidity,Sentiment,Momentum and Valuation

Felt more like a Stand Up Comedian as the audience were in splits on some of the budget and stock market situations I presented…

Union Budget 2013 Review Event

Performance of the BSE Sector Indices in 2011/12  and to date is quite Interesting ….What provoked this post is Sameer’s counter argument in my earlier post…he is bullish in the short term,citing the favourable upmoves in the Pharma,Cement and Auto Sectors…I’m looking at the Bigger Picture and I’m not so excited really as Macros are clearly playing up and this Government is unlikely to push big ticket reforms…we need to await 2014 General Elections,which I fear may yet again through up a fractured verdict…but I hope with a more reform friendly and decisive coalition !

Have a Look at the Performance of the BSE Sector Indices in 2011/12 and to date…Quite Interesting…The Reds & Greens signal fall or rise/holding up from over a year ago  

The Alltime High & Low Columns are quite revealing

• FMCG,Healthcare and Auto Indices  have registered All time Highs this Month…with consistent Wealth Creation in the 21st century in FMCG and Healthcare while a huge surge in the last four years in the Auto Sector
• Quick and huge  wealth destruction in the IT sector in 2000/2001,the Metals and Power Sector inside Ten months in 2008 between January and October and in the Realty Sector between Jan 2008 and March 2009  

PERFORMANCE OF BSE SECTOR INDICES AS ON APRIL 26,2012

• IT  shows a Drop,but TCS has outperformed Infosys ,which has slumped and the latter holds 48% weightage in the Index ! against just 29% by TCS !…this needs to be rectified by BSE rightaway…more so as the Market Cap of TCS is Rs 233301 crs against just Rs 135415 crs of Infosys !….The Index tracks the share price of  10 Companies with 88% weightage of just three …Infosys,TCS and Wipro …Other interesting constituents are Oracle Finance and Financial Technologies 
•   Techk comprises of 30 IT,Telecom,Media and Communication Companies and has mirrored IT fall
• FMCG has been the years Darling with ITC (55% weightage) and HUL (18% weightage) outperforming to allow the Index to hit Alltime Highs…11 Companies constitute this Index…Interesting ones are the two Kingfisher Group Companies,United Spirits and United Breweries…. and Tata Global (spotted this at Rs 80 late in 2011) and the huge 2010/2011 winner Jubilant Foods (Dominoes Pizza)
•  Consumer Durables has heavyweight Titan with 51% weightage in the Index…It’s been a flat year
• Metals has seen a bad year…In fact this Index has slumped the highest @ 35% over last year…75% Index weightage is in Five scrips led by Tata Steel with 22% followed by Coal India,Jindal Steel,Sterlite and Hindalco
• Oil & Gas too has seen a bad year…Reliance with a 54% weightage and ONGC with a 22% weightage aggregate a skewed weightage of 76% in the Index
• Capital Good Giants,India Proxy Larsen and Toubro and BHEL have a weightage of  54% and 16% respectively in the Index that monitors the share price of  17 companies,that also include Siemens,Suzlon,Havells,Thermax,ABB and Punj Lloyd…it’s been a shocking year for both,Larsen and BHEL on the bourses and the steep fall has unnerved even the aggressive Investors
• Healthcare has held up well in 2011/12…19 Healthcare and Pharma Companies comprise the Index with Sun Pharma (18%),Dr Reddys (17%) and Cipla (12%) leading the weightages
• 14 Banks comprise the Bankex with the top three weightages given to HDFC Bank (26%),ICICI Bank (25%) and State Bank of India (16%)…it’s been a very challenging year for the Banks given the slowdown in the Economy and high interest rates affecting credit offtake…the rising level of NPAs remains a threat
•  PSU ~ The Index has 60 PSU Companies in it ! with Coal India and ONGC leading at 14% each in weightages followed by State Bank of India with 9% and NTPC with 8%…Interestingly these 60 Comnpanies have an aggregate  Market Cap of Rs 1561821 crs currently….and this smartly and significantly  constitute nearly 26%,that’s over one fourth of the Total Current Market Cap of BSE of Rs 6108734 crs 
• The Auto Index covers 10 Companies across the sector spectrum of leading four HMV and LMV wheelers & Two Wheelers,Battery (Exide) & Engine (Cummins) Manufacturers and Tyres (Apollo)…Aggregate 86% weightage is given to top Five Vehicle Players led by Tata Motors with a 31% weightage .Interestingly and encouragingly too,this Index has held up well,largely due to outperformance by Tata Motors…However Index aggregate Market Cap is below 5% of total market cap 
• Realty Index tracks the share price of 12 realty companies…DLF lead weightages with 33% followed by Unitech (17%),Oberoi (10%) and HDIL (10%)…Shobha,Godrej Properties,Phoenix,D B Realty are some others in this Index…it’s continued to be a sliding year for this sector that’s been saddled with huge crippling debt,huge inventories and delayed projects….but how much more lower can it go !…search for contrarion winners in this sector over the long term…had spotted Orbit at Rs 20 + late last year and early this year…Price has doubled to @ Rs 48 currently…and even Indiabulls Real Estate at Rs 45 + levels after demerger of Indiabulls Power….it surged to Rs 80 levels before reacting now to Rs 62 …But Both do not form part of this Index 
• Power Sector is battling  Source Feed Supplies of Coal and Gas that’s crippling Operations and resulting in lower output and capacity underutilisation….Implementation of both,Public and Private Mega Projects too has been delayed for a host of reasons …This Index tracks 19 companies in the Sector that cover Generators,Transmitters and Distributors as also others that supply Equipment like BHEL which has the second largest weightage of 15% …NTPC with a 20%  leads the weightages….Incidentally Private Power Players like Reliance Power  and Adani Power have a weightage of 4% and 3%  respectively….Given the Challenges faced,the Year has been quite unkind to this Sector…the Index has slumped @ 27% in the past year…anyone for a Contrarion Bull Play here !? 

Tch ! Tch! Sterlite merges into Sesa to create Sesa Sterlite...and then Vedanta Aluminiuma nd Madras Aluminium merge into Sesa Sterlite  !…This was Vedanta’s Anil Agarwal’s Plan all along !

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=31c0c994-76b9-40b0-b0aa-ff7915cf7876

On August 17,2010 I had voiced serious concern when Vedanta involved cash rich Sesa Goa to invest in the takeover of Cairn

Sesa Goa drained full of Cash it has and will have too !…. to Invest US $ 3 Billion for a 20% Stake in Cairns India…. both drop sharply by over 8% to Rs 321 and over 6% to Rs 333 respectively

At that time too Anil Agarwal said this Investment would be EPS Accretive !….Now on merging Sterlite into Sesa to create Sesa Sterlite,and then later merging his two Aluminium Companies into Sesa Sterlite he repeats this Line….How ! May I ask ?

I’m not even bothering to go into the Merger Ratio etc etc etc because Anil Agarwal’s gameplan is now quite clear….

• Merge unlisted Sesa Industries into Sesa Goa
• Then rip Sesa Goa of it’s FULL Cash by getting it to invest into a 20% stake in Cairn
• And now merge Sterlite into it so that the heavy capex,borrowings in Aluminium and other Commodity Business gets subsidised by Sesa Goa’s Balance Sheet

Citigroup Global Markets and DSP Merill Lynch have even provided an opinion of fairness from the financial point of view regarding the share merger ratios to the Boards of Sesa Goa and Sterlite respectively…..Really !

Recall the late 1980s and early 1990s when the late Manu Chhabria acquired Shaw Wallace,Dunlop and Hindustan Dorr Oliver and then serious issues of Corporate Governance surfaced ~ his battles with his brother Kishore who was perceived to side with the Mallyas ….all his companies were stripped of Cash

Anil Agarwal has been pursuing the Path of Non Ferrous Commodities with great zeal and vigour~Zinc,Copper and Aluminium…. till then it was alright ,though question mark was raised on the low valuation of the PSU,Balco when he acquired a stake in it

Problem began when his Vedanta Group then acquired the cash rich Iron Ore major Sesa Goa……I had voiced concerns immediately that there was a great fear that Sesa Goa’s Cash will be drained into the Vedanta group…..Shareholders were traumatised  when he created Debt in Zero Debt Sesa Goa and then depleted and committed all cash ,present and future, for Sesa Goa to take a 20% stake in Cairns when diversifying into this Oil major

His Vision for Vedanta is to be a Global Giant in Commodities and Mineral Resources ~ Shareholders of Sesa Goa who were basking in the rich company with the share price hovering at Rs 350 + levels are now seeing Sesa Goa slip below Rs 200 !….Pray tell me ,Mr Agarwal,how do you expect them to believe you !….you have betrayed them ,time and again !…Did Anil Agarwal really care for the Sesa Goa Shareholder ?…..Don’t Fool Yourself ! He Never did !

In the Past I’ve made several strong calls to immediately exit when significant Issues surface and I interpret them unfavourably like I had the Maytas and Satyam fiasco on December 17,2008 even before Ramalinga confessed in January 2009…The relevant blog is below and those seriously interested in several follow up blogs tracing chronologically what happened till I stopped blogging about this check out the Category on this Blog ,Satyam: The Sordid Astayam Saga

Satyam becomes Asatyam as Founder Ramalinga becomes Ravana !

Wednesday, December 17th, 2008

I will not give even a single A Rating to AA,aka Anil Agarwal…he is entitled to his Long Vision but not by shorting shareholders of Sesa Goa,even if he argues it’s only for the Short Term !

Where Serious Corporate Governance Issues Exist, I prefer to Exit…I do not Own,my long time favourite Sesa Goa any Longer…some of my clients may have been left with small holdings though

I’m not aware what the Vedas say,but Vedanta’s Vision is not carrying along with any degree of conviction,all it’s shareholders,especially the Minority Shareholders of Sesa Goa…Vedanta has forcibly taken away their Lollipop !….”Believe or Leave !…we don’t really care !” seems to be Vedanta’s face to them

Been an interesting week that finished off last evening with my address on ‘ Equity Research & Portfolio Management’ for IFEN (ICFAI Univ) at Indian Merchants Chambers…well received and have already received some interesting feedback from participants…one of which is from the promoter of www.attainix.com …..he is into advising on Intellectual Capital (IC) and has created,based on algorithims, an IC tracker that signals if scrips are under or overvalued  

…and now it’s a Saturday…and am taking some time out by time in at home……warmed by an interesting tussle between parrots,squirrels and sparrows for a share of the peanuts in their shell and rice grains on their feeding platform among my plants….finally agreeing to Q up and live in harmony….soothing sight

….read the past few days papers leisurely…some coverage that triggered my interest i’ve bulleted below with links….. and my comments in blue italics

• Reliance Industries to approach SEBI for the third time to settle Insider Trading Investigation through a Consent Order….in the first two approaches,RIL had offered merely token amounts to SEBI…one paper feels this time around the figure could be a record Rs 500 crs…… want to refresh what actually happened then click below on two earlier blogs by me on this in August 2008…am wondering if I should make this a TAP GAP Equity Poser as to what you think is the way RIL should be penalised for this….they earned over Rs 1000 crs in RPL insider deals in November 2007   

Mukesh Ambani coterie accused by Samajwadi Party for Insider Trading in RPL and Jai Corp

Tuesday, August 5th, 2008

• A Bloomberg article quoting Baosteel,China’s second largest Steel Mill,on the possibility of an Iron Ore Price Bubble developing…..may happen after a few years though and current FOB Prices of US $ 175/T may drop to US $ 80/T …so my thoughts revolved around the impact on Sesa Goa….it is already facing an Investigation from the Serious Frauds Investigation Office (SFIO) for under invoicing exports by Rs 1002 crs between 2001 and 2007 and paying higher agent commissions of Rs 50 crs when it was under Mitsui control….plus the draining out of all Cash by it’s new Owners,Anil Agarwal’s Vedanta Group for acquiring a 20% stake in Cairns India+ Higher Royalties and tax now payable to the Government….should one therefore exit Sesa Goa at Rs 290/Rs 300 ?

http://www.financialexpress.com/news/iron-ore-bubble-looms-may-lead-to-lower-prices/793669/0

• The Oil Under recoveries and the additional subsidy burden on upstream majors ONGC,Oil India and GAIL ….when I debated in my workshops in BSE and elsewhere in 2005/6 that Oil will cross US $ 100/barrel in a few years…it was at US $ 30 -40 levels at the time,people felt I was stretching it…It crossed US $140 in 2008 !…before receding in 2009 to under US $ 50…and has again enetered three digits…..am wondering what will happen if Oil moves towards US $ 200 in the next year or two !…..India will have a refining capacity of 230 million tonnes by 2012….but domestic crude from ONGC,Oil India revolves around 30 million with Cairns adding a few million more….and our demand is at 150 Million and climbing as GDP grows at 7%-8% +….so our Oil Imports will be over 110 million tonnes annually and we can get into a very tight situation like we did in 2008….it will reflect in a higher fiscal deficit and therefore higher government borrowings to fund this deficit…..Look for Higher Indirect and Direct Tax Rates and Higher Petroleum Prices in such scenarios …..As long as High Fuel Subsidies are borne by and Oil under recoveries dominate the operations of the PSUs, is there any merit in investing in upstream PSU Oil Companies like ONGC,Oil India and Gail or even in the PSU Refining and Marketing Giants Indian Oil,BPCL or HPCL ? 

http://www.business-standard.com/india/news/govt-shifts-rs-4299-cr-burden-to-oil-firms-/436329/

• RBI Governor D Subbarao warning that the government will have a hard time meeting it’s fiscal deficit target….I highlighted this situation in my presentation at my IFEN address yesterday and showed how the fiscal deficit is being funded by high government borrowings…the Governor fears spark off the possibility that these may be even higher than projected

http://www.business-standard.com/india/news/rbi-difficult-to-deliver46-fiscal-deficit-target/436213/

• NSE changes algorithim approval process

http://www.business-standard.com/india/news/nse-changes-algorithm-approval-process/436299/

My thoughts turned to the rapid growth of High Frequency Trading (HFT) in recent years….HFT is one way of  algorithmic trading…in USA,over 50% of trading is now high frequency trading….Data shows that a HFT trader on an average does not hold any position longer than 22 seconds !…..HFT Trader throws in a number of high speed trades for round trip execution in micro seconds….it has been found that over 80% of such orders return cancelled….such orders,though small in size,but through a high recurrence rate, try to capture price imbalances available for just milliseconds to generate huge profits…the trade is decided automatically by algorithimic computer models that analyse real time data to capture these price inefficiencies and imbalances…..HFT has sparked off the need for a strong regulatory and supervisory and monitoring system in place,especially after the flash crash in US markets on May 6,2010

HFT is just leveraging on advances made in Information Technology….there is no fundamental or technical basis decisions involved in Trading….the algorithimic computer model developed creates automated trading decisions to thow for execution into the trading system of the Exchange….it’s like throwing your fishing road into a ‘swarming with fish’ river or lake….you are bound to hook in !…..some leading broking houses boast of generating 25% annual returns on funds deployed in HFT…..many top brokers have paid the NSE several crores so that their servers are placed besides those of the Central Servers of NSE so even milliseconds are not lost in the round trip trade execution and that they can scale up HFT at their end to leverage on this advantage that most in the markets dont have and are probably not even aware of !

Tweaking Technology for Profits…..An Unfair Advantage…..Not a Level Playing Field…..No Research involved in Stock Selection……Just concentrate HFT in highly liquid bell weather stocks that trade high volumes to accumulate profits

• Morgan Stanley releases a report predicting a Sensex of 30000 in 18 months based on the modified earnings yield gap approach…but says it will first go down in the next three months from 18000+ levels before bouncing back…ofcourse there are caveats too 

http://www.business-standard.com/india/news/sensex-at-30000-in-18-months-morgan-stanley/436180/

Given Global and Domestic Macro concerns,I would reiterate that the Sensex will seek 16000 shortly….and I will not share Morgan Stanley’s model optimism that the Sensex will touch 30000 in 18 months…..I wish it does though !

Enough for you’ll to ponder over the weekend….have a good one

….and here’s a classic…..if I were ‘Nike’ then I would be ‘just doing it’ and if you were ‘McDonalds’ you would be ‘just loving it’……Now ! Now !…..I’m referring to my Blogging !

Cheers !      

‘Synchronicity’….Carl Jung coined it to stand for ‘Meaningful Coincidences’….James Redfield used it to introduce his ‘First Insight’ as being aware of ‘Chance Coincidences’…..and I keep experiencing it !

How many times your Dreams or Thoughts are immediately followed by an exact Reality ?

How often are you thinking of a person you have not met for years and as if on cue he or she calls you or crosses the Road ahead ?

How often you desire or covet or need something badly and have no idea how to get it….impossible or improbable  it seems at that moment….and you get it ! ?

These are all instances of ‘Synchronicity’ or Meaningful Coincidences……means you are in the Flow……A Force or Spirit at work guiding these to happen

…and I’ve been repeatedly experiencing  this……

On Saturday morning I passed Chunabhatti an eastern suburb of Mumbai and not my daily route….rarely go past …..and an elderly NRI ex Client from Kuwait flashed through my mind….when in Mumbai he resides at his house  in Chunabhatti and we have not been in touch for the past three years as 2008 was a bad year for Markets and I had some difficulty in urging clients to have the patience and conviction of our selections… we had positioned his Equity Portfolio beautifully to surge on recovery…..over 40 % of the portfolio was in Sesa Goa at ex bonus and ex split Rs 165…and it had fallen to less than Rs 70 in October 2008 !…..but he did hold this selection as I learnt today…read below    

Then yesterday,Monday evening wife asked what should the Cook make for Dinner…would Vegetable Biryani be alright ?…she does make this rather well so I mumbled ‘Alright’…..while it was being cooked  and despite  the lovely aroma of Long grained Basmati Rice and the strong flavours of well cooked Cauliflower and Potatoes and other Vegetables,I felt something was missing…..Ah ! it was absence of some Spanish Saffron ! or Kesar !…..we did not have any stock of it….and the same NRI Client from Kuwait flashed through my mind !….he had gifted me four boxes of Spanish Saffron  over three years ago !

And Guess what !?…..he called today !….had come to Mumbai on a medical emergency and asked me to pray for him as he had undergone a critical bypass surgery as there were seven blockages !….is now recovering and wants to meet up with me !….and tells me that he sold 9000 shares of Sesa Goa at Rs 430 and yet has 19000 left  !…price is just a shade below Rs 300 today…so what should he do…can he buy at this price ? he inquired……..told him I was so happy he made great monies on our Scrip Sesa Goa and congratulated him for having the conviction and temperament to hold on to it…….. that ‘Health is Wealth’ for him now and he should focus on his full and fast recovery from the bypass…….. Sesa Goa will come and Go !

He is going to be here for the rest of May……Plan to meet up with him for Tea……..am in the flow……and that’s a positive

Have any of you experienced ‘Synchronicity’ ?….do share your experiences….believe me these are not mere coincidences !…there is a Spirit guiding these events to happen….even an Intuition is a type of Synchronicity…… 

You want to empower your thinking some more on these lines read James Redfield’s ‘The Celestine Prophecy’ where he introduces his First Nine Insights of which ‘Syncrhonicity’ is the First

Cheers !     

Tony, Shambu & Swaroop….this blog on MOIL is in response to your requests….but will serve the interests of all readers

As expected MOIL IPO received overwhelming subscription….Issued at Rs 375 with a 5% retail investors discount……and as expected it listed quite marvelously on December 15….reaching a High of Rs 591 on BSE…reacting sharply to close at Rs 466….then yesterday seeking another Low of Rs 451 before closing at Rs 462

What Now ?….Does it represent a Buying Opportunity at Rs 462 or will it drop yet further closer to it’s IPO Price of Rs 375 ?….Should Allottees who have yet not sold and new buyers continue to hold MOIL ?

My clear sense is that at Rs 462,MOIL appears fairly valued….at 12 Earnings Multiples for FY 2011 Projected EPS of Rs 39…..I am more concerned with some serious risks that MOIL is facing    

• The Proposed Mines & Minerals (Development & Regulation) Bill 2010 that seeks to replace the 1957 Act stipulates that the mine lease holder will have to set aside 26% of the Net Profit from the Mine as an annuity to the State Government towards compensation,assistance and employment for the rehabilitation and settlement of the tribals and people who stay around the Mines
• Technological Advances has reduced the consumption of Manganese Ore in the Production of Steel…From 46 kgs of ferro manganese consumed to produce a tonne of steel,the figure now stands at 30 kgs and in some industralised countries has dropped to even 10 kgs…this will impact the demand for Manganese Ore
• The Fortunes of the Manganese Ore Miners is inextricably linked to the Fortunes of and Demands from the Steel Companies…Manganese is the fourth most used Metal after Iron,Aluminium and Copper….Over 90% of the World’s production of Manganese is utilised for the desulphurisation and strengthening of Steel…The Recession of 2008/9 saw the Steel and Managanese Ore Prices drop 60% from their peak …Have a Look at this table for MOIL

•  In FY 2011 the Fortunes have revived and Average Sales Prices per tonne have again crossed Rs 11000 for Manganese Ore….however the volatility over the past five years is a matter of concern
• The last estimates show that World Reserves are 5200 Million Tonnes of Manganese Ore…South Africa holds 76.9% of these,followed by Ukraine at 10% and Australia a shade over 3% and India a shade under 3%….India has become a net importer of high grade Manganese Ore in the last three years from being a net exporter….yet South Africa’s  dominance in Reserves can impact World Prices as they can increase exports significantly once their sea,road and rail infrastructure strengthens…China is the world’s largest producer of Steel but holds just about 2% of the World’s reserves of Manganese Ore…so China Demand and Supply Situation will dictate World Prices

So what is MOIL doing to tackle these Risks ?

•  MOIL has entered into 50:50 JV in Chattisgarh with SAIL in 2008 to set up projects at a  cost of Rs 392 crs to produce 31000 tpa of Ferro Manganese and 75000 tpa of Silico Manganese…this high value addition products will add to profitability and margins
• MOIL has also set up a similar 50:50 JV  in Andhra Pradesh with RINL in 2009 to set up projects at a cost of Rs 206 crs to produce 20000 tpa of Ferro Manganese and 37500 tpa of Silico Manganese
• At a cost of Rs 300 crs it plans to deepen the mining depth from current 360 meters to 660 meters at it’s largest Mine at Balaghat in Madhya Pradesh…currently MOIL operates Ten Mines,six at Nagpur and Bhandara in Maharashtra and Four in Balaghat in Madhya Pradesh….all ten are over 100 years old….only three are opencast mines…Dongri Buzurg Mine in Bhandara produces Manganese Dioxide used in the dry cell industry…Rs 180 crs is being spend on this mine to expand production…In October 2009 the Mines Ministry has also reserved @815 hectares in Maharashtra for MOIL…MOIL has applied for prospecting licenses for this area…..all these efforts will help MOIL in achieving its target to scale up production from the current 1.15 mtpa to 1.5 mtpa by  2015/16  
• MOIL is already one of the lowest cost producer of Manganese in the World…it has set up a wind farm to generate power of 4MW for captive use…in FY 10 it generated 3.3 MW
• World Steel Capacities till 2009 end were 1750 million tonnes with Production at 1223 Million tonnes….India is expected to produce 65 Million tonnes this year and is expected to move from the fifth largest producer in the World to the second largest by 2015/16…As at October 1,2010,MOIL had 21.7 million tonnes of proven and probable reserves (55% of which have an average manganese content of 40% and above and 27% has manganese content of 36% to 39.9%) and 69.5 million of measured,indicated or inferred reserves…Being debt free and holding Cash at Rs 1763 crs at September 2010 (Rs 104/share) MOIL is expected to leverage on growing domestic demand for Steel as the Government plays out the Rs 1.73 trillion outlay on Infratructure as stated in the last budget…In fact Steel Capacity from 73 millions tonnes is expected to cross 120 million tonnes by 2012    

My sense is that MOIL applied some make up to it’s current year financials to look a little more attractive as it came out with it’s IPO ….Going Forward the Volatility in Prices of Manganese Ore based on the swings in Fortunes of the Steel Industry will guide Earnings….so keep an eye on the Price per tonne of Manganese Ore….last three years the cycles have shown average extremes of Rs 6500 to Rs 11600…MOIL’s scale of Operations is just a percentage of that of Giant NMDC….and thus MOIL’s Share Price  will reflect lower relative Multiples….at 12 times Forward FY 11 EPS,my sense is that MOIL is at present fairly priced….Any significant deviation from projected PAT of Rs 650 crs this year will impact MOIL’s Share Price….An Earnings Multiple Range of of 10-15 is being established….Share Price will move past Rs 550 only if there is a sense of higher earnings than Rs 650 crs this year and markets will then sustain higher PE Multiple of 14 and 15…On the downside the IPO Price of Rs 375 can be touched if actual PAT drops into the Rs 500-Rs 550 crs range for FY 11,offering an EPS of Rs 30…likely if it has to expense 26% of profits for rehabilitation as per the new Bill Proposed 

So with MOIL at Rs 462,I would say it’s fairly priced given earnings assumptions in the short term and the risks it faces as outlined above

Bottomline….I am not a Buyer of MOIL at Rs 462…..With a strong Listing at Rs 550 + day before it was a sell for all those allotted shares….only 17 shares were allotted to retail investors….even at Rs 462,don’t regret selling it off…retail allotments are simply too insignificant to hold on to…just like I had opined for Reliance Power in Feb 2008…there too the retail allotments were poor at 16 or 17 shares and the market offered you in the first few days to exit above IPO Price at Rs 427+…since then it has simply collapsed….MOIL may not collapse…but take this profit now,more so because your holdings are too small to impact your portfolio,rather than on Valuation

Also have a look at the Networth Parameter…Currently MOIL has a Networth of Rs 2000 crs,while the Market Capitalisation is just under four times at just under Rs 8000 crs at CMP of Rs 462….that’s not Cheap nor a Bargain

Government divested 20% in the MOIL IPO with the Maharastra and MP State Governments offering 10% each…it yet holds a controlling stake of 80%…The Allotment Shareholding shows FIIs holding 3.62 %,DIIs holding 5.37% and remaining 11.01 % spread with Body Corporates and the Public….However numerous Bulk Deals in the past few days may reveal an altered shareholding pattern

Now having listed MOIL,the Government will have to strengthen Corporate Governance….In this context ,the Auditors…Shah,Baheti,Chandak & Co…have passed two remarks in their Report in the FY 10 Annual Report…they observe that MOIL had only three Independent Directors when it should have had Four…they also have commented that MOIL needs to improve it’s Internal Audit System 

I did not apply in the IPO,nor did I advice Clients strongly to do so as I expected very poor allotments….neither have I traded or advised clients to do so in MOIL in the past two days of Listing……..so I hold no conflict of Interest in my View…and the three Real Risks I outlined above at the Outset have influenced my View to be a measured and conservative  one for MOIL ….furthermore the huge swings in Profitability in the past five years,typical of Commodity Stocks,adds to the Risk of holding such stocks….you have to catch the right swing for great profits…..not everyone’s cup of tea……Having said this,a decent Realised Profit is better than a Notional one    

Cheers !    

Government got Gold with Coal India’s IPO last month…It was a Win Win Situation all around…as Issue Size was huge the Retail Segment was oversubscribed 2.3 times and also benefited from the rollover of the unsubscribed Employee Quota …so allotments were good…max 199 shares at Rs 245 less 5% discount

And Now we have the IPO of MOIL….attractive Pricing Band of Rs 340-Rs 375….However the Issue Size is Small and the Retail Segment will be oversubscribed 20 times…..therefore the allotment will not be generous

…Now a Retail Investor can apply upto Rs 2 lakhs…….Minimum application in MOIL is for 17 shares and in multiples of 17 thereafter…..On a max application of 527 shares in MOIL expect to be allotted just 25 shares…If Rs 375 is fixed as the issue Price then with a 5% discount the cost to Retail Investors will be Rs 356.25….Currently the Grey Market Premium is Rs 240…thus on allotment of 25 shares the profitability will be @ Rs 258.75 from Cost…that’s a Profit of @ Rs 6500…thats a 3.3% return in a month on a Application of Rs 197625….that’s very good and quite probable…infact fairly certain 

…but consider this…Instead of Primary market IPO of MOIL,consider Secondary Market Investment of @ Rs 2 lakhs in 3400 Shares of IFCI @ Rs 59…IFCI has slipped sharply in this correction and is available at Book Value this year and is to apply for a Banking Licence….If it moves up by just Rs 3 to Rs 62 ,the gains will be Rs 10200…There is a strong probability that it may move up much higher in December but there is also a probability that it may drop even below Rs 59 ! 

So what would you choose ?…a certain smaller gain with little or no chance of any Loss or a bigger probable gain with some probability of loss too in December 2010 ! 

Loss Aversion Psychological Tests conducted by D Kahneman and A Twersky are quite revealing…They gave these Options to a Group to choose from

A : A sure gain of US $ 250

or

B : 25% chance of a Gain of US $ 1000 and 75% chance of no gain at all

84% of the Group opted for A over B ( with the same expected payout but much greater risk)

They then reframed the Question and asked the same group to chose from

C : A sure Loss of US $ 750

or

D : A 75% chance of losing US $ 1000 and a 25% chance of losing nothing at all

73% preferred the gamble (with an expected loss of US $ 750) over the certain loss and opted for D

Stating the Question in terms of Gains and then in terms of Loss resulted in different choices

Loss Aversion implies that Individuals will prefer an uncertain gamble to a certain loss as long as the gamble has the possibility of no loss even though the expected value of the uncertain loss is higher than the certain loss

Interesting !

So which would you choose to Invest in ?

A : In the Primary Market IPO of MOIL with a certain lower gain

or

B : In the Secondary Market in IFCI with a high probabilty of a higher gain but also with a probability of a loss

My Choice would be B…what would be yours ?

One could do B and hedge it with A too…If B wins out in December it will be a Win Win situation all around

Making Choices in Equity is surely great Fun !

Cheers !

Coal India……What a stunning Listing !….surely beyond anybody’s expectations

Issued at Rs 245…opens at Rs 294…races away beyond Rs 320 before one could catch some breath….stays above this all day…touches a high of Rs 344 and closes near it at Rs 342 !

Coal India is now the fourth largest Listed Company by Market capitalisation….At Rs 342,it’s Market Cap is Rs 216241 crs…that’s just under US $ 49 billion….very close to third ranked State Bank of India….maybe a third ranking tomorrow !…….yet some distance away from ONGC and the leader Reliance Industries

…and tomorrow at 6.15 pm we have Muhurat Trading !…so we should see a new High for Coal India + a new high for the Sensex too !….Sensex surged to 20894..up by 428 points….one more similar surge tomorrow and we shall see a new Sensex high past 21250 ! 

Many retail allotees have got a great sale price even today as the share price simply whizzed past Rs 320 in minutes this morning…those who yet have not sold should really consider cashing in for now….that is my view….for the Long Term certainly COAL IS COOL !….but as Arzan’s response to my earlier today blog on Coal India observes ” Only a Monopoly can allow an inefficient company to be so highly valued and highly sought out ! “ ….but this is real money being made in Coal India…real, only if you cash it…and it’s a great price to do so now !

Cheers ! 

Coal India listed at Rs 294 and in a minute or two has raced away to Rs 314 ! Wow !…lets see if price sustains !

Coal India lists this morning….Expected to show Rs 300 atleast for awhile…surely Rs 275 +…Issue Price was Rs 245 with retail segment getting a 5% discount to make it Rs 232.75 for them…and this segment was oversubscribed 2.28 times and got the benefit of rollover from the undersubscribed Employees Segment….Those who applied for max 400 shares have been allotted 199 shares and should easily notch up gains of over Rs 10000 today on listing lighting up their Diwali

Should one buy,hold or sell Coal India on Listing today ?

Remember that other segments were oversubscribed 25 times…770 Institutions and 9500 Non Institutional Investors…they have got poor allotments…@ 4000 Shares for every 100000 applied…..surely they may eye Coal India on Listing….if the price is attractive enough…so this caps any downside in the short term

In the Long Term COAL IS COOL…COAL IS COOL…..sing in the beat of SINGH IS KING !

Simple Advice for now…CASH IS KING TOO !….Retail Investors should exit Full or Partial if they get Rs 285 + on listing today or in the next few days……Some may prefer the strategy of letting go few shares at a time to try and average better if price rises…..my sense is that the max allotment of 199 shares is relatively a small lot,so as our wise Sages say,if you are letting go,let go all together……remember the message in the story when a troubled disciple of a Guru was asked to empty the bag of pebbles in a nearby river…he took hours to return as he was counting each pebble before flinging it into the river…..Why? None was to remain with him !.

Institutional and High Networth Investors are reckoned to be smart…so they can decide for themselves to Buy further,hold on to their poor allotment or exit it

Oh! and do say thanks to our Government…they desperately need some warm greetings this Diwali

Cheers !   

Post script  we are 15 min away from listing and I’m told grey market premium has shot up to Rs 45…so we should see a strong Rs 290 + opening and market guys expect  Rs 310 to be recorded sometime during the day