Two Years ago,I read Richard Branson’s Quick Read and Lessons in Life “Screw It,Let’s Do It”

You Must read it too !..The Quick Read version is just Rs 150…ask your bookstore for a discount…the extended version a little more

I was floored…I have to admit that I changed my opinion of him…from an eccentric,lady killer,unethical go-getter and a carpetbagger to one who has a conscience and is a big and exciting risk taker by choice…and one who lives Life to the Full

I actually bought several copies and distributed it to clients and friends and relatives…It has been reprinted seven times in 2006 and thrice in  2007 to meet the demand !

Recently I again rewarded some participants ,for their interaction in my workshops, with it.

What also got me was that Richard and I have something in Common…we’ve both cheated Death Thrice !…Difference being he did so out of Choice…a Powerboat race across the Atlantic and two hot air balloon adventures across the Atlantic and the Pacific….. and me out of Tragic Chance…Bomb Blast at the BSE,trapped in the Worst Sandstorm in the Sahara Desert in Egypt and a near tragic Car Accident !

But this is about Richard Branson……

Richard Branson tried Crossing the Atlantic to Ireland to win the ‘Blue Riband’ on the Virgin Atlantic Challenger while Joan was delivering their first son…The son was born,but Richard’s Powerboat died on him with the hull splitting in a fierce storm and all of the crew being rescued of the raft after radioing out “Mayday ! Mayday! Mayday!”…he came back six years later in Virgin Atlantic Challenger II….but with sea water entering their fuel tanks and the engines stalling it looked like they had lost again….Richard Branson motivated his crew for one last try and somehow got the engines working and they won…Keep Trying and Never Give Up was his Big Lesson from this Adventure

Immediately he was challenged to cross the Atlantic yet again by a Swede, Per Lindstrand…but this time together in a Hot Air Balloon…He accepted after learning Per had two kids too !….He took lessons in Flying the Hot Air Balloon in Spain….They actually crossed the Atlantic to Ireland…but had serious landing Issues..When they flew into a thick Fog and missed the Beach,Per panicked and jumped into the ice cold waters…with only Richard’s weight to tackle,the ballon simply flew away higher..Fuel was low,Radio was not working and Richard weighed his options…he could parachute out into the ice cold ocean or stay put and while he was alive work out something…he chose the latter and was saved by a rescue helicopter…They pulled out Per from the Sea just before he would have froze to death…..Lessons learnt were several….Never Give Up….If you want to do something,just do it…prepare well…. have faith in yourself…help each other….Whatever your Goal,you’ll never succeed unless you let go of your fears and fly…Love your Family….Richard knew that he could die on this Adventure…so before he took it,he wrote a letter to his children saying “Live Life to the Full.Enjoy every minute of it.Love and look after Mum.”

Next Richard and Per embarked on a Hot Air Balloon to cross 8000 miles over the Pacific Ocean from Japan to America….This was an even more riskier journey than the one they had done before…As you can imagine,they faced challenges that threatened their Life…they finally landed in the wilderness of Canada and it took eight hours to rescue them…but they had done it ! 

“Life is too short to be unhappy”.Read the Book to find out how Richard’s enterprising mind gave birth to Virgin Music and what inspired Virgin Airlines,Virgin Trains and now Virgin Galactica…and the most inspiring of all,for me that is,how he finally got his ‘Necker’ island…says Richard “I can make up mind about people and ideas in sixty seconds.I rely more on gut instincts than thick reports.” 

There’s a lot more inspiring stuff in the Book…..Richard calls these Lessons in Life, Simple Truths. It’s written in first person and in a racy style….just go ahead and read it !…and share it with others !

It’s a doubly sad day for me today…I’m in Mourning …..Two of my favourite entertainers died yesterday…Farrah Fawcett and Michael Jackson…..both American…and both falling prey to the dreaded ‘Cs’…the former to Cancer and the latter to Cardiac Arrest

I grew up on both….From School to College,when I was 15, on the then 28 year old, vivacious , voluptous and sensual American Actress and ‘Charlie’s Angels’, Farrah Fawcett with her trademark Blond Tousled Hair and her Fantastic Smile…and from College to later on the ‘Moonwalker’ ,King of Pop and ‘Thriller’,Michael Jackson

62 year Old Farrah Fawcett lost her famous Blonde Hair to Chemotherapy and yesterday her battle with Cancer.She became famous in the 1970s TV Series Charlies Angels in which she played one of the three Detective Angels…the character of Jill Munroe

I remember I was in transition between school and college and so besotted by Farrah Fawcett that I had pinned up her famous Red Swimsuit Poster (It had sold Millions)…out of respect to my parents and my grandfather,I had pinned it on the inside of my cupboard door…my Dad was cool but everytime my Grandfather saw it he would grimace a bit…”Come On Pappaji!” I used to tell him…” it’s just an infatuation and a part of growing up ! “…uncannily,quite often when I opened the cupboard,my ’Pappaji’ used to appear from nowhere ! Wonder Why !? 

And Michael Jackson ! What an entertainer ! I grew up on him ! An era has ended ! We had one ending with the death of ’Elvis Presly’,another with the breaking up of the ‘Beatles’ and now with this untimely demise of Michael Jackson…Apparently he had a fatal cardiac arrest last afternoon

He became a celebrity when he was a child….It cost him a normal  childhood and the pangs of loneliness grew with him into adulthood…he faced serious headline Legal issues  of Child Molestation and Financial Woes….His famous NeverLand Ranch,were he had housed some exotic animals from all over the world, too was put up for sale…he suffered taunts of ‘Whacko Jacko”

I read sometime ago that he had found solace in Islam and had even gone to settle down in Bahrain,a small island country in the Middle East…I have spend three years in the 1980s on this lovely island of Bahrain and I was happy for him that finally maybe he would find peace and contentment…Apparently he moved back to Los Angeles and was planning and rehearsing for his Comeback Tour

I had the great fortune to attend his live concert in Mumbai in the late 1990s at the Andheri Sports Complex…..What a Mesmerising,Magnetic and Memorable performance ! haven’t seen anything like this ever since !

We were a group of 15 right up near the stage with hundreds and thousands beating down on us trying the break the barricades behinds us…There was Great Expectation as to how he would come on stage…some said by helicopter…so we were scanning the skies…A few insipid acts by other groups preceded his Entry

And what happened was this…the left side of the Stage simply appeared to blow up in smoke…Through smoke we saw a transperant rocket like capsule emerging in a slant position from below the erupted stage and in it was a very still Michael Jackson in a dynamic pose with his back to us…Phew ! Dramatic Indeed !…simply blew us all away

What followed was a medley of all his hits..”Beat It” ,”We are the World”,”Bad”,”Billie Jean”…We were simply Breathless with the Pace at which he changed outfits for each song and his movements on stage…. In one moment he was on stage on the last line of one song and in the next split second he appeared on the top of a platform on top of a huge mechanical crane that stretched into the crowds belting out another number !…How did he do it !?.Controlled Pyrotechics and a huge Wall of Lights and Support Performers at different levels on that wall was a stunning backdrop…His Entourage included his own team of Security Personnel,Support Dancers and Technicians and Tonnes of Equipment…all flown into Mumbai in a chartered Boeing

He was extremely secretive and a cordon of security was always around him…when GV Films,a listed company on BSE,tried to serve a Notice and even a Warrant on him at his suite at Oberoi Hotel (Now Trident) in Mumbai,his security guys just tore it up….GV Films had earlier tied up for concerts in India and had spend a lot of money too,but Michael Jackson had withdrawn as he took ill.If I remember correctly,the concert in Mumbai was organised a few years later by the then fledgling ‘Wizcraft’ team of three partners with some political patronage and blessings from Shiv Sena and Bal Thackeray…with active support from the now rebel MNS Founder nephew,Raj Thackeray…This was the launching pad into the big league for ‘Wizcraft’…Tickets were Rs 5000 and Rs 15000 and even more and a host of top Diamond Entities were involved in their distribution…there was suspicion and an investigation too had follwed for unaccounted sales of tickets.   

But the concert was worth it ! Mumbai had not seen anything like it and never since too !

When Michael Jackson rendered, with intense emotion, this classic “We are the World ” (Lyrics below) ,he had children and flowers and would you believe it ! even a Tank coming on stage ! to support…what choreography !…we begged and begged for more and more and were screaming  for an encore 

 

There comes a time
When we heed a certain call
When the world must come together as one
There are people dying
And it’s time to lend a hand to life
The greatest gift of all

We can’t go on
Pretending day by day
That someone, somewhere will soon make a change
We are all a part of
God’s great big family
And the truth, you know love is all we need

[Chorus]
We are the world
We are the children
We are the ones who make a brighter day
So let’s start giving
There’s a choice we’re making
We’re saving our own lives
It’s true we’ll make a better day
Just you and me

Send them your heart
So they’ll know that someone cares
And their lives will be stronger and free
As God has shown us by turning stone to bread
So we all must lend a helping hand

[Chorus]
We are the world
We are the children
We are the ones who make a brighter day
So let’s start giving
There’s a choice we’re making
We’re saving our own lives
It’s true we’ll make a better day
Just you and me

When you’re down and out
There seems no hope at all
But if you just believe
There’s no way we can fall
Well, well, well, well, let us realize
That a change will only come
When we stand together as one

[Chorus]
We are the world
We are the children
We are the ones who make a brighter day
So let’s start giving
There’s a choice we’re making
We’re saving our own lives
It’s true we’ll make a better day
Just you and me

 

 

 

Sing this out loud with emotion and passion today and you’ll sense why Michael Jackson will always be eternally alive…..his ‘Thriller’ Album with the hits ‘Beat It’,'Billie Jean’ and ‘Thriller’ remains the largest selling album of all time,having sold over 100 million copies 

 

 

 

 

Sadly,my wife had refused to come for the concert as she had and yet holds  intense misgivings about him after he was accused for Child Molestation….She says, what has a great ring of truth too,that you have to first and above all be a good Human being…everything else is secondary….even being a good or great performer……Michael Jackson settled some of these issues and was acquitted of others…but till his untimely death at 50 yesterday he was facing bankruptcy and prosecution for Financial Troubles…he had delayed his comeback tour but was to initiate it in London on July 13,2009…Sadly he “Beat It” before his comeback

Today, I’m humming instictively “…the day the Music Died” from Don Maclean’s classic ‘American Pie’

May Both their Souls Rest in Peace

…and Michael,may you ’Moonwalk’ in Heaven too !…we are mere Mortals..You are Immortal ! 

Minister of State for Science & Technology,Mr Prithviraj Chavan,just announced the second Forecast for this years Monsoon…the Picture is not good

• The First Forecast in April had predicted 96 % of Normal Long Term Average Rainfall….This Second Forecast lowers this to 93%  
• It’s the El Nino effect now playing with our Monsoons
• North-West India will get only 81% of Normal Rainfall
• Southern Peninsula will get 93% of the Normal Rainfall
• Central India will get 99% of Normal Rainfall

These projections are based on sophisticated statistical models and based on Input from Indian and International Monitoring Outfits and the Minister says he is confident of the accuracy of this forecast 

The Economic Implications will be announced by the Agricultural Ministry and other concerned Ministries later on…..Serious Worries are now arising on possibilities of Drought Conditions in certain Areas of India…This will seriously dent the Purchasing Power of Rural India

There is already a escalating crisis on Water Shortage in many States with delayed Monsoons…We are in the last week of June and the rains have just about hit Mumbai and are yet to hit Delhi

65% of the Kharif Crop depends on Monsoons,rather than irrigation….so expect prices of agricultural commodities to move northwards as production falls short….For example,the Ministry of Agriculture has already announced that in FY 10 the Sugar Production will be @17 million tonnes…and because of delayed monsoons,sugarcane would be diverted towards fodder and jaggery

Montek Singh Ahluwalia tells us that Finance Minister,Pranab Mukherjee’s Union Budget on July 6,2009 will be a popular one

Should really be interesting to see how !…given the backdrop of a High Fiscal Deficit,continuing Global Crisis,Declining Exports,Price Volatility in Currencies and Commodities and now a significantly below normal Monsoon forecast for this year !

In FY 09,it was Agricultural Growth that propped up GDP Growth with Manufacturing floundering…In FY 10, we should see both these sectors struggling now…and don’t expect the Services Sector to save the Show  

So for the Union Budget to be popular,it has to be really spectacular…for all…Intent may be there but the circumstances will constraint the ability

So what should we expect from this Budget ?…..Export Sops,Infrastructure Boost,Specific Solutions for Capital Formation,Direct and Indirect Tax Reliefs and Rebates for Individuals and all Business Entities,Disinvestment in specific PSUs and other major reforms……   

Sensex is holding on to +14000 levels pre-budget in expectations of the Budget and continuing high FII Inflows…but ‘El Nino’ is holding our Monsoons to ransom….and thus by consequence even our FM !

Sensex is walking a tightrope in the short term…if you are not convinced to reduce exposure to stocks or reduce trading activities,atleast delay further buying for a fortnight till after a post budget review…and hedging your holdings would not be a bad idea at all too !…An aggresive strategy would be to go short…but be warned you’re up against liquidity and momentum here…sensible to hedge and wait out the variables

Sensex gained a sensational 2000 Points overnight when Congress got a sensational clear mandate in the General Elections…But their Union Budget may not repeat such a rise overnight…Though Markets are living in Hope that it will !

July and August are critical as 76% of the rains occur in these two months with June and September accounting for the remaining 24%…so there is more risk of a downside staring at us in the short term with this Worrying Monsoon Forecast….a strong chance that the Sensex will slide below 12000 again on Poor Monsoons given the fact that even at 14000 levels currently the Sensex is at 16 times both past FY09 and projected flat FY 10 earnings…not exactly cheap……Poor Monsoons will impact Earnings and Impacted Earnings will affect the Sensex

This Poor Monsoons Forecasting today has influenced this Forewarning 

I’m not a Technical Guy !

Today’s papers say that unless Rains touch 2 cm..it’s been in mm so far,Monsoons have not officially arrived in Mumbai…yesterday I had blogged that they have

This is Technical stuff…For me the Romance with the Rains has begun….and the Romance with “Baarish main garam garam Bhutta,butter kay saath ! “ should begin soon !

And yes Gautam! Lovely thought to spare a thought for our Farmers who also grow these “Bhuttas” for us…may their fields be blessed with adequate Rains too  

What a relief !…Monsoon is officially now in Mumbai from last evening…It’s cooled down temperatures plenty…Electricity Bills that went through the roof in Summer and prompted protests should now also cool down

I can smell the corn !

It’s a real treat…Rains Lashing Down and you’re getting really wet at Marine Drive by the Arabian Sea,having left office earlier at 5 pm to beat the traffic and enjoy the corn ! ….Fresh Corn being roasted on Burning Coals under makeshift poly shelters…those hawking keeping a wary eye on cops…trying to cultivate them with a free corn or two…..it’s illegal to hawk on the seaface

My wife and I got our favourite corn guy…Gorakh…that’s what he calls himself as he’s from Gorakhpur….or should we say we had him…missed him last season…hope he’s back…Guy’s always smiling and he keeps some great corn in the gunny bag for us,lest it get’s spotted and  eaten away by someone else…Proudly displays it to us before putting it on the coals…and I’ll let you on a secret…put the corn without peeling off the leaves…it will take longer to roast…then apply some Amul Butter on it…Gorakh keeps this too besides the normal salt and chili powder and lemon….Heaven !….While the Heavens open out from above,you’ll open out to the Heavens from Below !…Pure Bliss…Heaven does cost a few Rupees more though ! Rs 12 against Rs 10 for the normal big ones 

And there was instant spontaneity and connection between us…his eyes lit up as he spotted our car slowing down for him…and when when we got him some ‘bhelpuri’ or give him one of my shirts,he treated us to a wide grin…bigger than his usual…he encapsulates the gutsy enterprising spirit of Mumbai

Meher Moos,the intrepid Traveller round the Globe, can often be spotted at the Kemps Corner Signal and at the Fountain signal seeking a car lift…two monsoons ago we gave her one at Fountain…we stopped at Gorakh and treated ourselves to the Corn..made Meher Moos have the one with Butter…she loved it !

We do have corn elsewhere too…but somehow “the baarish main garam garm bhutta,butter kay saath !” has always tasted the best with Gorakh !

And if you want roasted corn bhel then there’s this street vendor at Opera House…bang opposite Panchratna….with electronic,medical and car battery stores as his backdrop…..Nobody makes it like he does! Lip smacking stuff  ! great value for money…under Rs 20

Happiness is truly in small moments and in the present and in Corn and in the Monsoons !

13 Years after Mahindra Holidays & Resorts India Ltd (MHRIL) set up,it is coming tomorrow to the Public to raise Equity Funds.It’s in the Business of Vacation Ownership and is a leader in this Field having a market share of over 70%.

Members are empowered with a right to stay at any of the Company’s resorts,subject to prior reservation, for a period of One to Seven Days during designated months and for a Period of 10,25 or 33 Years depending on which Plan they have joined.For this Right they have paid an average of Rupees Rs 2.5 lakh with options to spread the Payment over as long as even 5 Years…Recognition of Income is a portion of this Fee in the year of Joining,with the rest apportioned over the plan Period

In these 12 years,the progress has been slow and steady with momentum seen in only the last few years

As of March 31,2009,it has a cumulative of  92825 Members…..Currently It has 27 resorts,some owned,some on long lease and five on short (under Two year Lease) with 1261 Apartment and cottages across them

Financial Performance….In FY 09 It earned Rs 80 crs on an equity of Rs 77 crs giving an EPS of just over Rs 10…It’s networth was just under Rs 196 crs giving a Book Value of @ Rs 25

So do I like the Company ?………Yes

So do I like the IPO ?……..No

So would I rather be a Member of MHRIL than a Shareholder ?……….Neither

Why is that ?……Well,both issues should be evaluated seperately

Let’s take the prospect of being a Shareholder first

The Pedigree is good and the Prospects are fair…..but the IPO Pricing is expensive…At Rs 275-Rs 325 MHRIL is asking us to pay 30 earnings multiples and 13 Book Multiples on recent performance…That’s HIgh…They are justified in doing this only if they see strong and quicker quantum growth ahead in earnings…I don’t.Their Growth will be constrained by the Apartments and cottages thay have available for right of use…The Object for this Issue reveals that Rs 211 crs are to be spend for Five Properties…to expand at Asthamudi in Kerala and Coorg in Karnataka,to renovate an acquired property in Ooty in Tamil Nadu and to build two new properties in Tungi,near Lonavla in Maharashtra and in Theog,near Simla in Himachal Pradesh…Over Rs 150 crs are for the last two new projects…Rs 111 crs are planned for FY 10 and Rs 93 crs for FY 11,rest later…there are no definitive agreements for the capex spend as of yet…each room would cost an average of @ Rs 50 lakhs and capacity is being projected close to 1600 apartments and cottages within a few years

Now let’s examine what’s on offer…The IPO is taking the book building route and the Price band has just been announced….The total issue is of 9262275 shares of Face Value Rs 10…so the Issue size at Rs 325 tops is Rs 301 crs…However only 5896084 shares are a fresh issue and 3369191 shares are actually on offer by the Promoter,Mahindra Group…so MHRIL will only get Rs 191.62 crs max at the top band price of Rs 325…while the Object to the Issue shows a Net Proceed Usage of Rs 211 crs after Issue Expenses!

Obviously and Clearly MHRIL wanted to issue at a higher Price !  

Pre Issue Net worth at March 31,2009 was Rs 195.80 crs…Post Issue Networth would be an accretion of Rs 191.62 crs max…that’s Rs 387.42 crs…Post Issue the Equity would be Rs 84.23 crs.

Assuming it crosses Rs 100 crs PAT in FY 10,including Other Income from Interest earned on Issue Proceeds,the Net Worth after paying of Dividends would be close to Rs 500 crs.Assuming Listing at Rs 325, the top price band,the Market Cap would be just over Rs 2700 crs…yet over five times Book Value…too high

Look at some of the Risk Factors…Munnar property is a legal issue from 2007…It’s build on Agricultural land…Goa Property is now a legal issue from 2009 for illegal structure…though order was squashed,a personal hearing by the Goa Panchayat has been sought by the company….Plans for the new properties at Tungi and Theog have yet to receive Government approval  

The Company has conveniently avoided Peer Comparison by stating that they believe there is no listed company in Vacation Ownerhip with their Business model…’Country Club’ comes closest to my mind, though it’s model is different

So MHRIL is clearly asking the high premium,in advance from us to capitalise on any growth prospects in the future…The Returns on Networth and Capital Employed have so far been good..above 45% and a few points below 20% respectively….but these are unlikely to be sustained as there will be gestation on New Properties at Tungi and Theog, which will absorb over Rs 150 crs

However,some consolation is that MHRIL atleast has some performance on which it is seeking high multiples…Last Year,Reliance Power short circuited all of us by asking and getting Rs 450 and 427.50 (retail) for a face Value Rs 10 share in it’s IPO when it’s first significant profits are yet some years away.Our cost was softened by the Bonus to under Rs 270

You are not going to miss the Boat by not subscribing to MHRIL…You got a chance to buy Reliance Power within a year of listing at @ Rs 100,even though Anil Ambani Group held 84%…Here too you may get MHRIL at Rs 200 thereabouts and even lower if it fails to perform as expected,even though Mahindra Group will continue to hold 83% of the shareholding  

Now Let’s see the Prospects of Becoming a Member

For considering Membership,if I evaluate it financially,I find that assuming Rs 30000 is currently Lodging Charges for a week’s stay at it’s resorts and taking a 5% annual Inflation rate,it will cost be just over Rs One Lakh in the 25th year for a similar stay…While this does look a lot and is a great marketing point,I find that if I have the discipline to alternatively Invest Rs 2.5 lakhs at 10% p a…it compounds to over Rs 27 lakhs after 25 Years…If I take the incremental Growth in my returns each Year and relate it to the increasing cost of staying for a week each year,I find that in the sixth year itself the Incremental Returns are higher than the Increased staying costs…I’m not even considering the annual fee of a few Thousands payable by members for maintenance of the properties !….so why commit? I would prefer to keep my holiday options open…even if I want to holiday at MHRIL,I can do that without being a Member…Ofourse,most will not see it this way as they will not practically invest Rs 2.5 lakhs at 10% pa for compounding…and also if they do,they may need their returns for some other higher priority application,than a Holiday…so in this sense they would think it is better to commit for a Holiday with MHRIL when one could !…However,I hate to commit for 25 years…who knows….my Children and later my Grandchildren may too want to keep their holiday options open !….also operationally on two seperate occasions we have found the Booking System of MHRIL wanting….Some Years ago a close friend became a member on the express confirmation that MHRIL would confirm Two apartments at their new Varca,Goa Property for a short holiday…They did…My Friend Invited my family to join him…When we reached Goa,MHRIL told us they was no place and how could Mumbai have confirmed !They offered us alternative arrangements which we refused…finally we compromised as we did not wish to ruin our short break and arranged our stay elsewhere but used MHRIL Property the full day…it was an amusing experience though…at the time they permitted saree and salwar khameez clad women to enter the swimming pool, respecting Indian Sentiments…the other experience was just last year…we wanted to vist the North..The same member friend enquired availability for the MHRIL Resorts on certain dates to be told they were booked…I called later and said I’m a first timer with MHRIL and they called me twice to confirm bookings for the same dates at the same resorts…the difference is that I was paying and he was a member who already had ! 

To be fair to them,MHRIL has 93000 members and currently assuming a week’s stay by each,MHRIL would need an equivalent number of weeks to accomodate them….It has currently 27 resorts and 1261 apartments and cottages spread over them…that’s mathematically just over 65000 weeks…Now there is going to be a demand for the better resorts…Like Coorg and Goa….Members are going to find it difficult to reserve them,unless they plan the exact dates of their week’s holiday several months in advance…How many really can do so ?  

MHRIL will only grow it’s earnings significantly if it can grow it’s members significantly….It will face two hurdles doing so…Quality and Quantity of it’s Resorts…..Maintaining High Standards at it’s resorts and Growing them in Number,not just expanding in existing ones

This IPO will help MHRIL speed up it’s endeavour…It will have Monies in the Banks…and not Borrowed ones at that.

Fitch has helped MHRIL by rating this IPO a 4 on 5 indicating better fundamentals relative to other Issues 

If it was priced lower,I would have helped them too !     

Dear Gautam,

Rajesh Exports is in a different league all together…It’s a Premier Trading House…..It’s sales are Rs 10000 crs ….It’s market cap is over Rs 1100 crs at Rs 46 share price…..It’s book value is Rs 33 as on 31/3/2008…Face Value is Rs 1….In FY 08 it earned Rs 200 crs on a topline of over Rs 8000 crs…that’s a small 2.5 % net margin…and in a tough FY 09,we’ve seen erosion in Profits…It will probably close FY 09 with less than Rs 100 crs Net profit,although topline would be Rs 10000 crs…That’s an EPS of Rs 4,half of FY 08 performance….so a 11 Multiple is fine currently(would include some premium for land assets too) ….Their Fixed Assets show Rs 65 crs…so the land you’re talking about at Rs 450 value crs in 2007 may not be in this Company fully…Even if it is ,the per share Value comes to Rs 18 only at this 2007 Valuation…The Land Valuation has probably dropped 40%….So Adjusted Book Value to current date would be closer to Rs 50 at best….With share Price at Rs 46,there is no real margin of safety here…..Also they show Debt of over Rs 1000 crs as on 31/3/2008 and networth is lower…Opening Cash on 1/4/2009 was Rs 5000 crs,but the current liabilities were also over Rs 4000 crs…Net Current Assets though were over Rs 1500 crs
Promoter,Rajesh Mehta has recently pledged 1.5 cr shares for personal reasons…Why would he need Rs 50 crs,assuming a hairline to today’s price ?…..52 Week High/Low is Rs 86/Rs 18…market Volumes are quite strong..in lakhs everyday

At Rs 20 it was clearly a less risky and tempting buy…At Rs 46,the risk goes up,even more in context of declining profits and margins and tight liquidity situation

On the other hand ,Classic Diamond is small…Market Cap is just above Rs 60 crs..Looks tempting to buy it out…but Enterprise Value shoots up with the High Debt…and there is a question mark on the quality of Earnings,Inventories and Debtors

But yes,Rajesh Exports has scale of Operations….and is a better bet than Classic Diamonds,if at all you want exposure in this sector.

Dr Sudeep has responded on my recent Sesa Goa blog and requested to throw some light on Classic Diamonds as it’s available for Rs 16 while the Book Value is Rs 56

Well,Dr Sudeep…here’s my take on Classic Diamonds

The Company was set up in 1986 and is run by a Father & Son Bhansali Duo and they own 64% of the Share Capital…The Company plans a preferential allotment of 750000 Share warrants to them…For such a small issue choosing the Warrants route rather than an upfront Shares Issue creates some doubt on promoters liquidity situation 

Most certainly Classic Diamonds has regular market makers…even yesterdays volumes were decent…77000+ on BSE and over a Lakh shares on NSE…The Face Value is Rs 2 and the 52 Week High Low is Rs 62 and Rs 7

It’s been earning between Rs 20 crs and Rs 30 crores annualy for the past five years…FY 08 was good at Rs 31 crs,after an Interest charge of Rs 30 crs,giving an EPS of Rs 8 on an Equity of Rs 7.69 crs.It maintained the Dividend at 25%…that’s 50 Paise per share…that’s a poor 6.25 % payout from the EPS of Rs 8…so it’s not even a Dividend Yeild Scrip and makes you suspect on the quality of earnings when shareholders are not being rewarded well…It paid them just under Rs 2 crs,even though it earned a net of Rs 31 crs 

The full year FY 09 results should be out next week on June 25,2009…but it had earned Rs 9 crs in the first half and then lost Rs 3 crs in the third quarter to net an aggregate of just Rs 6 crs…last quarter may not excite…In FY 08 the last quarter had shown under Rs 6 crs…Jewellery constituted 1/3 rd of the business in FY 08,upfrom 25% in FY 07…so profits are even throughout the year…..Assuming no further loss and a flat quarter,the EPS would probably be around Rs 2…So expect the Company to skip Dividend for FY 09 or reduce it from 25%

March 31,2008 shows the Company is servicing debt of just under Rs 350 crs….The Reserves are Rs 209 crs and that’s why you are getting excited because it computes to a Book Value of Rs 56…The Debt Equity is 1.6

But The Business Model is not secure…The company earned Rs 31 crs in FY 08 on a topline of Rs 710 crs…that’s a net margin of below 5%…It’s Net Block is Rs 50 crs at 31/3/2008 and Capital Employed of Rs 565 crs was blocked in nearly equal ratio in High Inventories and High Debtors….maybe typical of the Diamonds and Jewellery Sector but these areas simply devour working capital and put pressure on interest cover and are prone to manipulation too

Also ,many in this sector have massive Fx loss on their books…Last Year at @ US $ 1=Rs 40,they left their Imports unhedged while hedging their exports…also many speculated in unrelated areas of stocks,oil,currencies and even real estate and have lost heavily…Full Year FY 09 Results will show if Classic Diamonds too suffered Fx losses or they adjusted it in High Cost Inventories  

Clearly FY 09 being a Pressure Year,servicing the Debt will cause some problems…company needs to lower Inventory and Debtors Levels and free the Cash…because scaling up business with such low Returns on both,the Networth and the Total Capital Employed, is foolish….Jewellery Segment contributed one third of the business in Fy 08,up from 25% in FY 07….rest is Diamonds…they were planning High Value Add Big Size Diamond business at Sachin, a Surat SEZ facility…..Whatever….they need to reward the shareholders better…because the returns they have been getting are simply not good enough for the quantum of monies they are employing in the business…but I daresay,the Bhansalis will not rethink their distribution policy…they don’t seem to have the liquidity…and that raises a lot of questions for me,when they should have it ! 

This Sector suffers from Corporate Governance and Transparency Issues and thus scrips in this Sector rarely catch the fancy of Serious Long Term Investors 

I personally would not go for Classic Diamonds for serious Corporate Governance and Quality of Earnings Issues…I would thus ignore this High Book Value of Rs 56 relative to the low share price of Rs 16

However risk takers would expect for a move back towards Rs 30 and above on recovery in this sector…don’t go overboard though…only a small exposure if at all you’re in Classic Love with Classic Diamonds

I’m not too gung-ho on this sector and definitely not in love with Classic Diamonds just because it seems to appear cheap against it’s Book Value…I don’t trust the Book Value…as simple as that…show me where’s the Money !..In Inventories and Debtors !? Not Liquid enough and transperant enough  for me !         

Two ‘Experts’, one Fundamental and the other Technical were on a Viewers Q & A show right now on UTVi…A viewers question came forth on RPL…”I have brought it at Rs 154,what should I do ?”

Both these ‘Experts’ went into detail on the merits of holding RPL for a One Year Hold !…Insipid Stuff…Guys ! RPL will not be in existence after a Year !….the RPL Price right now merely reflects a 16:1 merger ratio with Reliance Industries…RPL is Rs 125 and Reliance Industries is Rs 2000 !…That’s it !…so it’s a just a Piggy back share right now…It has to be !…what would have served the viewer well would be to explain to him that at his cost of Rs 154 in RPL ,his holding cost in Reliance Industries would be Rs 2464 …Will this Price be reached ,given the Court ruling against them in the RNRL Case ?…The downward effect of this on the EPS will be Rs 20 in FY 11…Despite this short term reaction in Reliance,it definitely will regain strength…It has a 17% weightage in the Sensex and if the Sensex has to move towards 18000 and beyond in the next year or two,it cannot be without Reliance climbing upwards towards Rs 3000 and beyond

Come On Guys in UTVi…I’ve been impressed with all of you…but you do need to vet some of your ‘Experts’ before putting them on your channel…unless ofcourse you’re being dictated by their PR exercise !

Just witnessed a Semi-Final where Professionals lost out to the Passionates !

What a Win !…A few minutes ago Pakistan shocked favourites South Africa in the semi final of the ICC Cricket T-20 World Cup…They will now feature in the Finals at Lords on Sunday…their second consecutive Final in Two World Cups

Pakistan won the toss and Younus Khan elected to Bat….Fearlessly  Aggressive from the first Over itself,Pakistan posted 149-4 with one down Afridi powering a superb 51 in 34 balls…he hit Spinner, Botha for four consecutive Fours in one over…It was the 11th Over of the Innings and went for 18 runs and that was a clinching over on hindsight

The way Pakistan was batting with opener Kamran scoring a brisk 23 in 13 balls and Afridi firing all guns,a score of 170 looked on the cards…both threw their wickets  miscuing Lofted shots…and South African bowlers came back and in the last 5 overs merely 29 runs were scored

Surprising Umer Gul came in only in the 13th Over and infact did not complete his quota of 4 overs…But Afridi bowled brilliantly taking 2 for 16 in his 4 overs…To my mind this was the turning point of the match…he bowled,both the star and in form and match winner potential batsmen,Gibbs and De Villeirs…Then Umer Gul bowled a fantastic 17th over…gave just six runs…Abe Morkel,the hard hitting South African Batsman,came in just too late with just a few overs left…that’s because Duminy and Kallis were just not getting out and run a ball was not enough !

Losing by just 7 runs looks close…but Pakistan was always on top with Kallis’ 64 of 54 going in vain as South Africa scored 142-5 

Man of the Match.Afridi revealed that he had asked the captain and coach to let him Open the Batting or go One down and they kept their faith in him

This Win  is more than just Sunshine for Pakistan…The country needed this inspiring and uplifting win….. Pakistan as a country is experiencing a lot of turmoil and no Cricketing Nation is willing to play on it’s shores after the Terrorist attack on the Sri Lankan Team….  even the ICC has ruled that no 50 Overs World Cup Game will be played in Pakistan when it is held in the sub continent

In the inaugural T-20 World Cup in 2007 in South Africa,India lifted the Trophy by beating Pakistan in a pulsating Final….Pakistan played inspired cricket today to earn a second chance now to Lift the Trophy

One more observation…..did anyone notice that the Women’s Semi-Finals precede the Men’s Semi-Finals on the same ground and on the same day in their respective T 20 World Cups…and that the four Women Semi-Final teams are India,New Zealand,England and Australia while the four Men Semi Final teams are totally different…. Pakistan,South Africa,West Indies and Sri Lanka ! Uncanny !…no One Country has qualified for the Semi-Finals in both, the Womens and the Mens Events !

If Sri Lanka prevail over West Indies in tomorrow’s second Semi-Final, the Men’s Event Title will definitely remain in the sub continent as they would face Pakistan

With India capitulating v/s New Zealand today, the Womens Title is not going to be in the sub continent as New Zealand plays the Final against the winners of the England v/s Australia Semi-Final tomorrow