Hey ! Manoj…this blog on Resurgere Mines and Minerals is on your request…..and it’s in  Red,some bold, for obvious reasons……..

What’s happening is that the Share Price is free falling ad racing downhill in Resurgence Mines & Minerals…..Ridiculous Situation….it’s rattling the Markets and destroying Investors and Traders

But this was always a Suspect Scrip right from Listing two years ago….One simply should not have flirted with it ever…devil in disguise!?

Headed by Subhash and Amit Sharma,Resurgere had its IPO in August 2008 in the Price band of Rs 263 to Rs 272 and the Price was fixed at Rs 270….FV is Rs 10….IPO Size was Rs 120 crs with issuance of 44.50 lakh shares….It got listed on BSE and NSE on September 1,2008 and was clearly manipulated to zoom to close at Rs 524…next day it zoomed again to Rs 626…then dropped on the third day,fourth and fifth day to Rs 500,Rs 400 and Rs 300 respectively….and thus inside five days of Listing the IPO Investor Returns Story ended !….it’s been downhill since then and touched a woeful Rs 36 on March 9,2009….it was issued just six months earlier at Rs 270!

Resurgere is simply poisoning all those who are drinking it…it’s like being lured to vist those tempting ‘Girlie Bars’ only to get drunk and realise,a bit too late, on getting sober that you’ve been stripped and robbed after your drink was spiked ! 

Resurgere seems to be simply digging Mines to extract ore and dump and bury it’s Investors in !  

I normally do not cover such companies that

• Appear as a strong recommendation in repeated unsolicited SMSes
• Appear regularly in Bulk Deals….Tool to rig volumes and prices to show false hyper activity
• Auditors have been changed inside months of listing….Resurgere did so in June 2009
• Earn well but skip dividends…creating doubt if earnings are truly genuine  
• New Non Executive & Independent Directors enter and exit the Board inside a year of the IPO as if it’s some Garden Party and they are merely Guests…have a look below

Directors who have exited

Pradeep Bishnoi…Appointed Whole Time Director post IPO on 16/10/2008….Resigned  in  eight months 19/6/2009

Aditya Singh…..Appointed Non Executive Independent Director on 16/10/2008…Resigned inside seven months on 8/5/2009

Suresh Kumar Singh….Appointed Non Executive Independent Director on 16/10/2008…Resigned inside eight months on 10/6/2009

I D Agarwal and Burzin Somandy…both  Non Executive Independent Directors resigned in August 2010

Non Executive and Independent Directors just appointed in August 2010

Ashwin Shankar Iyer and Ajay Sethi

It is High time that SEBI must make it mandatory for resigning Directors to specify the real reason that they are resigning…and that too within months of being appointed  

Post IPO GDR Issue,Conversion of Warrants and Announcement of Liberal Bonus and Split

On July 27,2010,Resurgere announced a liberal Bonus of 2:1 and Split in Face Value of the Equity Share from Rs 10 to Rs 1!…Price surged to Rs 146 and closed at Rs 140 on that day

Post IPO Capital was Rs 28.54 crs…Then In June 2010 it announced that it has successfully placed 5208333 GDRs @ US $ 10.32 each aggregating US $ 53.75 Million representing 31249998 Equity Shares at Rs 75…that’s a Rs 234 crs Issue…..in fact more than doubled the Equity !….On August 26,2010 it announced that 65 lakh Equity warrants will be converted to similar number of shares…..(This has been considered at Rs 75) Thus Equity Capital is now to be Rs 66.29 crs of FV Rs 10….With Bonus this will jump to Rs 198.87 crs !

The Reserves that were Rs 357 crs at March 31,2010 were boosted by an incremental Rs 203 crs to Rs 560 crs because of the GDR issue….This Issue also took the networth to Rs 620 crs….Book Value was adjusted from Rs 135 at March 31,2010 to Rs 103 on this issue and Rs 100 on conversion of warrants…it will further adjust to Rs 3.50 after the Bonus and Split and an assumption of Rs 30 crs PAT for the Current year…Reserves would be close to Rs 500 crs

Today the Share Price closed at Rs 69 cum bonus and cum split after hitting a 52 week low of Rs 62 on NSE…if you adjust for this the ex bonus and ex split price computes to just Rs 2.30  for  share of FV Rs 1!…Such Corporate Actions simply serve no purpose other than facilitating Price manipulation on the Bourses

In 2010 it earned Rs 27.50 crs and an EPS of near Rs 10…yet it failed to issue a Dividend….It’s latest quarter earnings at June 30,2010 are just above Rs 12 crs

Mines over 320 acres in Jharkhand has been reclaimed by the State Government from the leaseholder and Resurgere,who had taken a sub lease after paying a security deposit of Rs 10 crs and Advance Royalty of Rs 15 crs is unable to mine iron ore from these mines

So what will Resurgere earn in the coming year or two ?….I have assumed it will  continue to record atleast Rs 30 crs PAT….may show higher to seduce new ‘bakra’ investors 

As Corporate Governance issues surface,I’m sure SEBI,BSE and NSE will take this company to task…..wonder what’s taking them so long!

Nothing to Cheer about Resurgere…remember Austral Coke !…you can search it on this blog….Investors were destroyed there too after SEBI allowed the IPO despite significant controversies being raised

Sad…….

It’s a Catch 22 Situation today!

….22 years ago in Free India I lost my Independence !…I got married

….and Catch 22!?…well I can and I can’t !…I Love and I don’t….I…..

….and thanks to all who have wished “Happy Anniversary”…but just reflect !…’Anniversary’ actually means and breaks up into  ’Any-Ver-Sorry’!…’Ver’ is ‘Husband’ in Gujju Language

…..happily it’s been a huge multibagger already with great multibagger potential ahead too !

Cheers !

One of the major objectives of my Blog is to warn Investors to stay away from or reconsider the risks assumed in their Investment in certain Companies….the two ‘Cs’,Cranes Software and Compact Disc were covered earlier in my blog to serve this objective 

Thanks Saif for reminding me about Cranes Software…It has sunk to below Rs 7…I had warned about it on December 31,2009…..In reply to your response I think you can write this Investment off as a bad experience and a part of a learning curve  

Cranes Software at 52 week low of Rs 28…was Rs 100 just over a year ago…Waste or Worth ?

Thursday, December 31st, 2009

Thanks Ashish Pathak for your response on Compact Disc….It remains at Rs 65 even today…and you’ve been married to it for four long years !…I had reviewed it in detail on March 25,2010 and was not impressed with Corporate Governance and Liquidity Position of the Company….my position remains unchanged even today…but you seem to have more conviction here than I do…Live it if you’re sure and comfortable with the risks that you have assumed…otherwise look to switch

Compact Disc at Rs 87.20…Fantastic Surge past few days…is it sustainable?

Thursday, March 25th, 2010

Cheers !

Cheers Son !…on your turning 21 in 2 0 1 0  

Cut out the 0’s and live the Positives as auspiciously Glorious Sunshine salutes you after Mumbai has experienced three continous Wet days….It’s got to be a promising sign !…..the Sun’s Rays are God’s Blessings being showered down on you

And you are my sure shot Investing Theme with record Multibagger Potential !….measurable  not just by Wealth of Money……

Remember that the Purpose of Life is to Live a Life of Purpose….and Live Fearlessly…all the Power to Achieve is within you…..Playing out Life and Blackjack 21 can be very entertaining and addicting…but Blackjack is Pure Gambling while Life should not be so,although you must roll the dice to get a  six and sail your ship on the Ocean rather than be sheltered always in the harbour ! 

Love you Lots….you are my vitamin..am always there for you….but if you ever message me ” Can’t afford a Girlfriend…No Mon,No Fun,Your Son !”….you know my reply ” Too Bad,How Sad,Your Dad !”

Cheers Son !….you can now get legally married without my consent !

Those were the days, my friend
We thought they’d never end
We’d sing and dance forever and a day
We’d live the life we choose
We’d fight and never lose
Those were the days
Oh, yes, those were the days

This classic Mary Hopkins Song comes to my mind today as current Pakistan Cricketers yet again stand bluntly exposed for Matchfixing in a sting operation captured on Video…..Spot fixing…Three No Balls predecided as revealed before by the Match Fixer Bookie M Majeed ….In the Lords test against England,M Aamer to bowl one of the first ball of the third over and M Asif to bowl one of his last ball of his tenth over !…then the next day Aamer to again bowl a No ball of the third ball of his third over……all happened on cue !….coincidence ! ?….yeah ! Mangoes grow on Apple Trees !….and this has to involve the captain S Butt too as he had the discretion to decide who bowls which over……..

Let me tell you the rot begins at the top…and not just in Pakistan !

Once upon a Time Cricket was a Gentlemens’ Game…those were the Days my friend,we thought they’d never end…….

I was a Crazy Cricket Guy…played it at school,college and club levels in India and overseas…hold the record for hitting six sixes in a six ball over…so what if it was an inter-building Tennis ball match in the 1970s !…..

I was immensely patriotic whenever India played….was nine year old in 1971 when India, under Ajit Wadekar, registered their their first two overseas Series wins 1-0 against West Indies and England..I remember being glued to the Transistor to catch the running commentary and how some excited fans had put up a makeshift scoreboard on the Kemps Corner Flyover in South Mumbai and we kept a watch on it and cheered every wicket that India took and every run that India scored….I wore half pants then…still do even now but more as a fashion !

I was an allrounder and captained my school….felt great and proud when often the newspapers covered my scores and wickets taken….I’ve scored  a Century for H R College at Cross Maidan…have taken 5 wickets in an over for my Bahrain Team…have played several match winning Innings for the Indian Club in  Bahrain…many against top Pakistan Teams…there was always rivalry,often heated and bitter,and even blatant umpire bias whenever we played a Pakistan Team…I remember vividly one particular day that ended in big Violence initiated by the Pakistan supporters when we were playing the seven-a- side finals…..we had beated the top Pakistan team on the island in the semis…that hurt them bad….when they saw we were winning the finals too against a joint Indo-Pak Team from a Junior League,the Pakistan supporters and even their Cricketers swarmed the playing field with Bats ,stumps,hockey sticks and bottles…I was half way through my over….and it soon became a free for all !……I was pulled off the field by Murtaza Ali Baig,the brother of ex India Cricketer Abbas Ali Baig and told to stand on the sidelines….some of my more aggressive team members were giving it back with Stumps and Bats too !…..the match was abandoned…..we were forced to share the cup by the Governing Cricket Committee that was controlled largely by Pakistan Clubs representatives………    

Then I returned to India and Career took over…..yet was a regular at India Test Matches and ODIs at the Wankhede Stadium in Mumbai….even skipped office,pretending to be at Meetings to do so !

Those were the days my Friend…….

And then Big Money took over Cricket….where there is Money there will be stink !…so the Snake of Match Fixing reared it’s ugly and vicious head…..Bookies and Betting……adding to the Racism and Bias that always existed but now is no longer subtle

Cricket that should be Entertaining and Engrossing on the Field became so off  the field too……Bollywood also made a hit film ‘Jannat’ on Cricket Matchfixing…….Cricketers from several Nations yeilded to temptation of the Quick Wicked ‘W’ trio of Wealth,Wine and Women….An Indian ex Captain was banned for Life and is now a Congress MP…Wow ! 

T 20 Cricket Format was created and with it’s success our IPL was born….more obscene monies….more glamour….more stink

Somewhere down the years my Patriotic fervour began ebbing whenever India played…..many reasons….matchfixing is one of them……

MatchFixing and EquityFixing !….Corruption,Obscene Monies and Insider Trading in Both…..so what’s the Difference !     

So what’s a Double Dip ! ?….so I asked around and this is what I get…..

Young Daughter : It’s an Icecream, Dad !

Older Son : It’s when they serve starters with two types of Dips

My Tea-sing Wife : Darling, it’s what I do to make your ‘kadak’ Tea…Double Dips…Two Tea Bags in one cup of Tea

A Club Friend : It’s when I dive into the swimming pool twice in a single day

Ben Bernanke ,the US Fed Governor : USA is not facing it or causing it !

Clearly Individual Perspective influences the Definition

For those who really want to know….Double Dip refers to a Recession,followed by a short Recovery and then a more Deeper Recession than the previous one from which any recovery becomes more difficult….not good for the Economy and not good for Stock Markets….and USA is certainly facing the Possibility of a Double Dip Recession

So if the Dow goes Down bad,what shall be the fate of our Sensex !?

Let’s debate this over a Double Dip Tea ,shall we !

Cheers !

George Soros’ Quantum Fund has purchased a 4% Equity Stake in BSE from shareholder Dubai Financial for US $ 35 Million…this works out to @ Rs 380/share

In December 2009 I had updated the Value of the BSE Share which I had initiated in August 2008

Updated Valuation of BSE Ltd (December 8,2009) and

SHARES OF BSE LTD LOSING VALUE (August 5,2008)

So what’s the BSE Value in August 2010 ?

Let’s have a look at it’s latest unaudited performance for Q 1 FY 11

Clearly BSE is facing challenges….Average Turnover is declining…Profits are just about being maintained….if it were not for the cushion of  Income from Investments and Deposits,it would have a tough time meeting expenses

Current View on BSE Valuation

Let’s assume BSE just about maintains Profits in FY 11…this would mean a Net Profit of over Rs 200 crs and an EPS of Rs 19 and a 20 Multiple would mean Rs 380….thats what Soros has purchased into BSE at right now

The Reserves at March 31,2010 are Rs 1882 crs…these should move to @ Rs 2050 crs net of Dividend at March 31,2011…With Equity at Rs 10.34 crs the Networth should move from Rs 1892 crs in FY 10 to @ 2060 crs in FY 11…Thus Book Value would be @ Rs 200….At Two Book Multiple the BSE Share will be valued at Rs 400

BSE will face increasing Competition from existing and newer Equity Exchanges

Competition should be hotting up…BSE has lost ground in both Spot and Derivatives markets to NSE…In fact Derivatives has been a still born baby on BSE…..Now it will have MCX to contend with also…SEBI has been delaying giving the Green Signal to MCX to commence Equity Trading….MCX has gone to Court and SEBI has been directed to make a decision by September 30,2010 on this

Financial Gleanings from the Annual Report of BSE for FY 10

• BSE’s Networth of Rs 1892 crs at March 31,2010 is represented by Net Fixed Assets of Rs 85 crs,Investments of Rs 1917 crs ( Long term Rs 1383 crs and Current Rs 534 crs),Net Current Assets of Rs 169 crs net of Deposits from Members of Rs 278 crs and Other liability of Rs One Cr
• Net Fixed Assets of Rs 85 crs includes Freehold Land of Rs 10 crs and Buildings of Rs 9.4 crs….BSE’s 28 storey Jeejeebhoy Towers (not all is owned by BSE) and the Rotunda are icons for India’s Equity Markets….surely their Value is significantly much more…Tangible Fixed Assets are stated at Cost less accumulated Depreciation and Impairment…would be interesting and serve the need for more transperancy if a small note on potential revaluation is included in the Annual Report
• Investments have a market value of just @ Rs 40 crs more than on Books at March 31,2010
• Total Income includes Rs 59 crs from Services to Corporates….this constitutes Rs 19 crs as Listing Fees,Rs 10 crs from Bookbuilding Software and Rs 30 crs from Other Services
• Total Income also includes Rs 40 crs from Income from Other Services…these largely constitute Rs 13.5 crs from Rent and Maintenance,Rs 18.8 crs from Data Dissemination Fees (Rs 14.7 crs from Overseas) ad Rs 7.5 crs Miscellaneous Income

Conclusion

India Vision 2025 clearly sees India Poised to move smartly ahead in context of Sensex,Market Capitalisation and Equity Fund Inflows

BSE may face increased compettion from the likes of NSE and MCX and any others that may emerge….but the Pie is increasing in Size and BSE will strive to cut out a good piece for itself

A New Professional Team is now at the helm and a lot of ‘excess baggage and complacency’ is being dealt with…surely some good must come out of this….the true test is whether BSE is able to revive Turnover Volumes in Spot and bring to Life it’s F & O Market

BSE is debt free….It clearly has Land and Building Value in excess of what it shows under Fixed Assets

It needs to meet Annual Expenses of @ Rs Rs 180 to Rs 200 crs….Rs 50 crs for Computers,Rs 50 crs for Staff (over 500 Employees),Rs 40 crs for Admin & other Expenses and Rs 40 crs for Depreciation (Non Cash)…It earns Rs 245 crs from Income only from Investments and Deposits…this is thus it’s cushion….Contingent Liabilities reveal Rs 107 crs as possible legal claims against BSE of which Rs 103 crs have been assessed as remotely materialising

In this context paying Rs 380 to Rs 400 for a BSE Share is not really unjustified

My Intuition…reason in a hurry….. tells me that even if the View is Long term,an Investment in BSE Shares may just give you a healthy return even in the short to medium term

At Rs 380,BSE is valued just under Rs 4000 crs or under a Billion Dollars

The Future ahead may be challenging…but in these challenges lie the Opportunities on Scale ….and a Listing of BSE (delayed but should happen) will surely unlock this Potential going forward

Oh ! and BSE has contributed nearly Rs 4 crs to SEBI in FY 10

Cheers !

Moralities and Ethics….Just Words……Sad

Another Instance breaking out on Times Now….. this time it concerns how the Deputy NSA of USA, Michael B Froman, openly and quite bluntly telling Montek Singh Ahluwalia of our Planning Commission, in an email reply, to monitor and control Dow Chemicals Growing Noise in India regarding the Bhopal Gas Tragedy of 1984… this was in response to a request email by Ahluwalia to Froman to help at the World Bank Meeting to get IBRD to extend Borrowing limits for India 

What a Quid Pro Quo !…. Linking Commercial Interests to a Human Tragedy !

While this tactic is nothing new from USA, it was shocking to hear Ahluwalia on TV refusing to even acknowledge this demand by Froman in his email reply !… he was being hounded by a Times Now Reporter and moved away saying “Where’s the Tea ‘Yaar’ !?” to get away from the Times TV Reporter…. and he shockingly states he cannot remember whether he spoke to Froman or wrote to him !….. today is August 18, 2010…. and this email ‘to and fro’ took place less than three weeks ago on July 30, 2010 !…. he counters” Do you know how many emails I receive !?”…. Sad !

This is another Instance of how the current US Government is a front for top US Corporates, as aptly observed by Sunita Narain, Director, Centre for Science & Environment and a leading voice and activist for getting adequate compensation for the Bhopal Tragedy affected… she is shocked at USA’s Impunity in asking for such a quid pro quo 

Union Carbide was responsible for the Bhopal Gas Tragedy… It was taken over by Dow Chemicals…. Lakhs of people were affected, and 26 years hence many yet are, by the Bhopal Gas Tragedy and have received poor compensation…. Dow Chemicals actually took over Union Carbide’s US Liabilities but says it’s not responsible for any additional Indian Compensation Liability that is being sought… Dow Chemicals has business Interests in India through Technology Transfers and Licensing to Indian Companies for Speciality Chemicals

The US Government is clearly trying to arm twist India…. be it in it’s Pakistan Policy,it’s passing a Bill raising Visa Fees for certain Types of Visas used by Indian IT Companies to depute staff to US Clients… irony is that US Giant IBM is the second biggest private Indian Employer in India,employing 130000 Indians……. or in it’s Double Standards when dealing with the two Big ‘B’s’… British Petroleum and Bhopal !……. President Obama has come down heavily on British Petroleum for the ‘continuing from April’ Oil Leak that is yet affecting USA coastline… he has extracted, to begin with, a compensation of US $ 20 billion from BP… this is just one year’s profit for BP !….. India got just under Rs 500 crs or a little over US $ 100 Million for the Bhopal Tragedy and it was clearly ‘pressurised’ by USA in releasing Union Carbide Chairman, Warren Anderson and letting him fly back to USA!… wonder what quid pro quo was involved for this !…. was an Indian closely connected with the Powers in India and who was to serve a Long sentence,released from US Jail and deported ?… Aha !

An Indo-US Nuclear Bill has just been introduced in our Legislature…. Obama is to vist India in November this year

I just hope, India asserts itself with USA….. and does not cow or bow down to pressure tactics sacrificing Moralities, Ethics and Humanitarian Issues over Corporate and Commercial Interests! 

My simple observation is that why did Mr Ahluwalia not immediately disclose and make public this email reply from Froman on July 30, 2010 ?…. it is sensitive as Froman clearly says “…. it will have a chilling effect on our Investment Relationship”…… as Rachna Dhingra, another leading Bhopal Gas Tragedy activist, accuses that this is not the first time Mr Ahluwalia has lobbied for Dow Chemicals !… and Kamal Nath, responsible for our National Highways Grid, calls him an armchair economist… Interesting

….but then if Mr Ahluwalia had disclosed this email, Times Now would not have got this exclusive ‘Breaking News’ !…. I hope Times Now Sources don’t have any political scores to settle… and that the media is not being used to settle any……   

Whatever….. I strongly believe India does have a Conscience….. and a Credible & Honest Media are the Conscience Keepers of our Nation…..

We can do without Dow if we have to Bow or Cow !… Wow ! this rhymes ! 

Cheers !

How should one now view and play Sesa Goa and Cairns India ?

Markets have been excited for a few days by the Vedanta Group buying out the controlling stake in Cairns India from a subsidiary of Cairns Energy….. Cairns India had raced away to a new High of Rs 368 yesterday morning….. then came the press release by the Vedanta Group announcing this takeover in detail

My initial reaction was one of anger and worry that, as feared, Anil Agarwal of Vedanta was using Sesa Goa Cash for the Group

The Markets reacted sharply and Sesa Goa dropped over 8% to Rs 321 while Cairns India dropped over 6% to Rs 333

The takeover is by the Vedanta Group in this manner

• Vedanta Resources plc will acquire 51% Equity Stake in Cairns India from a subsidiary of Cairns Energy at Rs 355/share + Rs 50/share as Non Compete Fee for Three Years
• Sesa Goa, a Vedanta Group Company will tender for 20 % Equity Stake from the remaining Cairns India Shareholders at Rs 355/share… this is the mandatory Open Offer
• In case Sesa Goa receives less than 20% then Vedanta will make up the difference at cost… that’s Rs 405/share

My immediate concern is what will be the Impact on Sesa Goa as it has been my pet recommendation for several years now and recently very strongly from July 2008 cum bonus and cum split at Rs 3200 (that’s Rs 160 ex)…. On April 8, 2010, Sesa Goa zoomed to an all time high of Rs 494 for a FV Rs 1 Share as Iron Ore Prices crossed US $ 140/t

This acqusition will cost over US $ 9 Billion of which Sesa Goa will be investing from it’s cash resources US $ 3 Billion for a 20% stake…. it does not even have this on it’s Balance Sheet currently !….. The Drop in Share Prices of both Sesa Goa and Cairn India reflect the concerns that Investors have on Vedanta’s Corporate Governance and Credibility

Let’s have a quick look at whether such a reaction is a precursor to a further drop in the share prices of both

This is not an overnight acqusition….. negotiations must have commenced months ago with Cairns Group…. connect this with the uptick in Cairns India’s Share Price…. it moved from a range of Rs 150-Rs 200 a year ago, to Rs 200-250 and then from Rs 250-Rs 300 and yesterday zoomed to a High of Rs 368 before reacting to close at Rs 333

So what is Sesa Goa’s role in this Acquisition

Vedanta simply wants US $ 3 Billion from Sesa Goa….it would have created a ruckus to simply borrow all of this inter group…so part of the acquisition of Cairns India to the extent of 20% of the Equity Capital of Cairns India that,’coincidentally’ amounts to US $ 3 billion is to be shown as an Investment in the Books of Sesa Goa

Cairns India has a Share Capital (FV Rs 10)of Rs 1897.34 crs…. 20% of this is Rs 379.5 crs thats 37.95 crs number of Shares… to be exact 379496447 shares…. at Rs 355 that’s Rs 13471 crs…. at the agreed Exchange rate of US $ 1=Rs 46.765 that’s US $ 2.88 Billion…. This is expected to come in from the mandatory open offer of 20% that needs to be made to remaining shareholders….. any shortfall will be purchased from Vedanta’s 51% acquisition… but at a higher price of Rs 405, that’s Vedanta’s cost

So Sesa Goa’s Balance Sheet will merely reflect a movement on the Assets side from Cash to Investments after cashing out on existing Investments to fund this Stake

But the standalone Balance Sheet of Sesa Goa at March 31, 2010 does not support US $ 3 Billion!

Here’s how Sesa Goa looks at March 31,2010

Networth : Rs 7209 crs = Equity Rs 83 crs + Reserves Rs 7126 crs

Represented by : Rs 580 crs Fixed Assets + Rs 5479 crs Investments + Rs 3076 crs Net Current Assets - Rs 1926 crs Loans = Rs 7209 crs

Where is the US $ 3 Billion Cash or @ Rs 13500 crs on the Books of Sesa Goa ! ?….. It’s Balance Sheet Size for total Capital employed is Rs 9135 crs ! (Networth + Loans) !

The Deal is expected to be done by early Fy 2011

So it’s clear that even FY 11 Cash accruals will be used for the Investment and maybe Sesa Goa may raise fresh debt… in 2009/10 it already has issued 5000 5% Coupon Rate FCCBs and raised US $ 500 M… at March 31, 2010, 755 FCCBs had been converted at the prescribed Rs 346.88 per share at a fixed rate of Rs 48 to One US Dollar…. Funds received from the FCCBs are reflected in Fixed Deposits of Rs 2350 crs reflected in Current Assets

So I extrapolated Sesa Goa Balance Sheet at March 31, 2011… To fund the Investment of Rs 13500 crs in Cairns from Cash Reserves, Sesa Goa’s Networth has to climb from Rs 7209 crs to atleast Rs 15000 crs…. This would be through a combination of FCCB Conversion of @ Rs 1900 crs (Unsecured Loans) and Profits near Rs 6000 crs in the year…. The Assets Side would reflect Fixed Assets of Rs 600 crs + Investments of Rs 13500 crs atleast + Net Current Assets of Rs 1000 crs

And the MD of Sesa Goa, P K Muherjee claims that Sesa Goa Capex will not be affected ! and that the Board of Sesa Goa feels this Investment in Cairns India will be beneficial to Sesa Goa Shareholders and will be immediately EPS accretive !

One Interesting way of Looking at this is that if we assume that Sesa Goa will continue to generate atleast US $ 1 Billion ever year in Cash Profits, this Investment in Cairns India is Three Years of Cash Profits.

The Moot evaluation here is to see how this Investment of US $ 3 Billion will bear fruit for Sesa Goa….. This Evaluation is Interesting as I studied the Potential Earnings Capabilities of Cairns India and it’s Dividend Policy and Potential in the future….. The actual cash inflow as returns to Sesa Goa will be through Dividends from Cairns India… as this being a strategic long term Investment it is unlikely to be sold for Gains in the near future

Cairns India has a current production of @ 45000 barrels of Oil per day (boepd)… it plans to raise this to 125000  boepd and then  to 240000 boepd…. at this level of 240000 it will be 25% of India’s Oil Production…. Now One barrel is @ 42 gallons or 159 litres…. thus this would mean 72 Million barrels a year, assuming 300 days of Production… In Q 1 FY 11,the realisation by Cairns was US $ 67/barrel…. taking this realistion, the Annual Revenues for 72 Million Barrels would be US $ 4.8 billion or Rs 23000 crs…. with low production and operating costs Cairns India can be expected to show a Bottomline exceeding US $ One Billion, or near Rs 5000 crs in a few years time…. That’s an EPS Level of over Rs 25…. Dividend Payout should be atleast 20% of this if not more… that’s Rs 5 /share atleast in a few years time

Sesa Goa will hold 37.95 crs shares being 20% of Cairns India’s Equity…. thus it will receive Rs 190 crs as Dividend assuming Rs 5/share Dividend by Cairns…. It has Invested atleast @ Rs 13500 crs ( more if it buys Cairns India shares at Rs 405 from Vedanta)… so the return on Investment is a paltry 1.40% being the Dividend Yeild!…. Of course it will benefit if Cairns India Share Price moves up strongly from the Rs 355 Cost to Sesa Goa…. but this would merely remain a notional gain and cannot reflect in the books….. But will Cairns India move up strongly ?….. If EPS is Rs 25 a few years down the line then on a 15 multiple the Share Price would be Rs 375… and Rs 500 on a 20 multiple

Alternatively Sesa Goa could have used it’s Cash Reserves to generate higher ROI to benefit Shareholders and reward it’s Shareholders with a High Dividend and a higher Valuation for the Company and therefore a Higher Share Price

These Options are now no longer open in the short to medium term as all Monies are to be used for Investment in Cairns India

So how will this affect the Share Price of Sesa Goa !…. I would think in the short term there would be an adverse impact and the share Price could drop below Rs 300

But just hold this thought… even if Other Income figures would not be significant,the PAT from Operations itself could cross Rs 4000 crs atleast…. that’s an EPS of near Rs 45 on Equity of Rs 90 crs (once FCCB’s convert)… Sesa Goa has reacted to Rs 320…. this is just Seven times  FY 11 Projected EPS of Rs 45…. and even a lower multiple if the PAT crosses Rs 6000 crs !….. so the downside in Sesa Goa may be limited as long as the profitability levels from Iron Ore Mining and Exports is sustained… albeit on higher volumes and lower margins

So one can hold on to Sesa Goa at current levels of Rs 320 and Cairns India at Rs 333, but keep monitoring developments and Company Performance

Cheers !

INDIA……We Love You MOTHER…..”Sare Jahan Se Achchha Hindustan Hamara”

Wishing 1.2 Billion Indians in India and all over the Globe a very Happy Independence Day….We are inspired by  and salute our waving ‘Tiranga’ that exudes the great confidence , the vibrancy and the positive energy of our great democracy….Peace and Prosperity for all

Let’s all stand up to attention and sing with fervour and feeling and patriotism,pride and passion our National Anthem

Jana gaṇa mana adhināyaka jaya he
Bhārata bhāgya vidhātā
Punjāba Sind Gujarāṭa Marāṭhā
Drāviḍa Utkala Banga
Vindhya Himāchala Yamunā Gangā
Ucchala jaladhi taranga
Tava śubha nāme jāge
Tava śubha āśiṣa māge
Gāhe tava jaya gāthā
Jana gaṇa mangala dāyaka jaya he
Bhārata bhāgya vidhāta
Jaya he jaya he jaya he
Jaya jaya jaya jaya he!

Thou art the ruler of the minds of all people,
Dispenser of India’s destiny.
Thy name rouses the hearts of Punjab, Sind,
Gujarat and Maratha,
Of the Dravida and Orissa and Bengal;
It echoes in the hills of the Vindhyas and Himalayas,
mingles in the music of Jamuna and Ganges and is
chanted by the waves of the Indian Ocean.
They pray for thy blessings and sing thy praise.
The saving of all people waits in thy hand,
Thou dispenser of India’s destiny.
Victory, victory, victory, Victory to thee.