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April 2011

TAP GAP Equity Poser 5/11….Will Anil Ambani Group of Companies not only survive but also create Wealth for you in the next three to five years ?….winning response gets a gauravblog hamper

TAP GAP….. Equity Poser 5/11……Respond by May 10,2011

Hip Hip Hip Hurrah ! Winner of the gauravblog hamper announced this Wednesday early morning,May 11,2011 ……thanks to quite a few of you for some very lively responses…most were skeptical …..but I’m going to give the gauravblog hamper to the most passionate,the most positive,the most optimistic response….you can view this as a contrarion call by me !……not to buy into Anil Ambani Group but to award the hamper to one who is in the minority but strongly defends his conviction that Anil Ambani Group of Companies,with Anil at the helm or not,will not only survive but will be great wealth creators….. Praveen Vishnu Shamain wins the gauravblog hamper for this Equity Poser…I was particularly impressed with his take that Anil Ambani Group of Companies may be takeover targets and will thus not only survive but create great wealth….. PVS please email me your postal address and telephone nos at [email protected] …well done

My own personal view is that Anil Ambani Group will see some more harrowing times before any likelihood of getting better….Value Investors will not invest in his group….too many Corporate Governance Issues and Account manipulations…..but Aggressive and Contrarion Investors may just find this to be a big,albeit high risk opportunity…increasingly so if the prices decline even further…..In fact since I posed this Poser end April,across all Anil Ambani Companies there has been a further decline in the shre price of 10% to 15% inside just over ten days…..There is no clear and decisive second face of the Group after Anil Ambani…..and with so many top heads already rolling in the 2G scam,there is a growing call for even Anil Ambani’s scalp…that will spell disaster for his group and his companies will register even further lows…..he is already facing huge problems in raising Capital,inability to reduce debt significantly in Reliance Communications as he is finding it difficult to monetise the tower assets at a good value (GTL went back on an agreed deal in June 2010 without assigning any reason…it would have reduced RCom debt by Rs 18000 crs) ,sticking to project implementation schedules,retaining or attracting top people to work for him,government animosity towards him for his aggressive anti government tirade through the media for favouring his brother’s group in the Family tussle between the two ,probably desperate times calling for desperate measures  ……and Anil Ambani will not be able to get away on the 2 G Scam with a mutually agreed Consent Terms with the Government,like he did with market regulator SEBI in a Corporate Governance and Manipulation of Accounts Issue,by agreeing to a Consent  order and paying up the stipulated fine of Rs 50 crs……it is  Ironically Reliance Power, which has jammed shareholders badly, remains in the top 50 market caps List at Rank 43 today with a market cap of  Rs 32525 crs despite being available at Rs 116,a shade above its’s 52 week low of Rs 110 ….Reliance Infra and Reliance Communications are available at well below Book Value and are quoted at Rs 596 and Rs 90  with market caps of Rs 15950 crs and Rs 18700 crs respectively…near their 52 week lows…Reliance Capital is at Rs 519 with a market cap of Rs 12818 crs and commands the best relative valuation among Anil Ambani Group of Companies read more

Probably Inspired by Politicians of his Day,Confucius Says……

“I have yet to meet a man as fond of high moral conduct as he is of outward appearances”

Confucius  

 

….probably inspired by Politicians of his day !….some things simply never change !

….and I was inspired by our Politicians of the Day !

…..yesterday on ‘Times Now’ on a debate on the Draft Report of the PAC on the 2G Scam,it ended in a slanging match between Congress Spokesman Manish Tewari and BJP Representative,Mahesh Jethmalani….Arnab Goswami as the Anchor was holding his own and seeking direct answers from Manish which were being studiously   avoided…..Mahesh lost his cool on Manish….in my view justifiably so…..accused him of polemic arguments and filibustering….”Shut Up!” screamed Mahesh…”Shut your trap !” screamed Manish back further threatening to meet every Profanity received with an Expletive of his own…..and then at the end coolly stating ” there is nothing personal between us !”

Vinod Mehta of Outlook with a stoic measured and respected stand said that it would be better to hold the debate the next day once it is adopted and seen whether it remains in this form or several phrases and paragraphs are deleted…Morever it would be unfair to simply concentrate on the PM and the PMO in the report as then the charge of political motivations would stick….uncover the roles played by others..Corporates and Journalists…and as if on cue,Arnab never misses a chance of flashing Barkha Dutt of NDTV across the Times Now Screen !….Barkha Dutt featured strongly in the Niira Radia Tapes discussing the DMK alliance with the Congress and who from DMK will become what Minister !…A Raja and Maran featured in the conversations   

So was I amused or angry at Manish Tewari’s silly obfuscating rhetorics in this debate yesterday…..Both really …he said that as a matter of personal propriety he will not discuss what is in the PAC Draft Report till it is adopted by the Parliament…Fuuny stand,as his Colleagues in Congress,some who were members of the PAC were holding Press Conferences lambasting the Draft Report as politically motivated,undemocratic and unilateral as it has pulled up the PMO and the then Finance Minister and now Home Minister,Chidambaram for not taking preventive action and turning a blind eye,despite being in the know,from letting the 2 G scam happen

The fact is that both CAG and the draft Report of PAC provide the figure of Rs 176000 crs as the loss suffered by the Nation in the 2 G Scam……the critical aspect is that the PMO allowed this scam to happen as they kept an ‘arms length’ away from the Telecom Ministry…also instructions were issued to keep this length as well as confine only to informal communications and not formal ones….Why !? read more

Biyani’s Future Ventures IPO…First you seduce at an obscene premium…and then now you seduce at Par !

Recent Past Pedigree Problem

So does FUTURE VENTURES really have a PROMISING FUTURE or is it just FUTURE PROMISES ?

Biyani’s ‘Future Ventures’…First you seduce Investors with a Future Capital Holdings IPO at an obscene premium…and now you seduce them at the other extreme with the Future Ventures IPO at near Par !

 In January 2008,just before Reliance Power seduced Investors at an obscene premium,Biyani’s Future Capital Holdings (FCH) seduced Investors with an IPO at Rs 765 !…just over three years down the line it has collapsed 80% to Rs 160 thereabouts…legal…yet criminal ! 

 Investors saved from FV IPO at a heavy Premium in 2008

And if Biyani had had his way he would have launched the IPO of even Future Ventures (FV) in  2008 in an attempt to gather Rs 2000 crs in it !…Rs 1500 crs would have been brought in by Promoters….probably monies from other Future Group Companies and in all probability from the IPO proceeds of FCH !……surely even the FV IPO  would have been at an obscene premium too….after FCH IPO, an EGM was called in early March 2008 to raise the Authorised Capital of Futures Ventures to Rs 5000 crs ! to pave the way for the IPO 

FV IPO Size now is for Rs 750 to Rs 825 crs in a bookbuilding range of Rs 10 to Rs 11…methinks this range is rather silly and senseless and it should have been a Fixed Price IPO

What will FV do ?

Biyani is resting on way past laurels with Pantaloon and Big Baazar

His own businesses are simply tight on cash and margins and lack of any fresh sustainable thrust in revenues and profits…SACH !….Oh ! that’s also the new brand of Products launched in 2008 in a venture with Sachin Tendulkar ! 

So now Biyani wants public monies in FV to invest in other businesses !…”trust my business and investment acumen” he seems to say…..however his own partner,with who he parted ways,Sameer Sain,ex Goldman Sachs raised questions on this….they both did not see eye to eye with each other on the business model to take the Future group forward

So should we trust Biyani and his FV ? 

FV is a book building Issue of 75 crore shares of Face Value Rs 10 at par of Rs 10 to Rs 11…it has opened today…however there are no Anchor Investors….unlike last weeks full subscription in the Anchor Investor quota of 30% of the 50% QIB Portion of the heavily oversubscribed IPO of the other Systematically Important Non Deposit taking NBFC,Muthoot Finance Ltd read more

Muthoot Finance Ltd IPO Closes today…will give strong gains on Listing…Problem is a Poor Allotment

I have already posed in TAP GAP an Equity Poser 4/11 on whether Muthoot Finace IPO is worth investing in at Rs 175?

Responses have been terrific in content and I thank all those so far who have taken the trouble to try and win the gauravblog hamper and send in their responses !…..those who have not can do so by midnight tonight for a chance to win…. those who have alreadfy can send in another response too !

Perhaps all of you can get some guidance from the Scriptech Scan Muthoot Finance IPO Template send to Clients by me on April 19,2011 and reproduced below……TAP GAP 4/11 Winner for the hamper will be selected by me tomorrow…all the best 

 
 
For Inspiring Investment Insight into Indian Equity check out www.gauravblog.com
THINK LOAN AGAINST GOLD….THINK MUTHOOT FINANCE LTD 
 
A SCRIPTECH SPARKLE SS 2 STOCK SELECTION
 IPO

OF

MUTHOOT FINANCE LTD (MFL)

RECOMMENDED FOR APPLICATION

Rs 160 – Rs 175 BOOKBUILDING RANGE

Size of Issue at Top end : Rs 901 Crs

 
IPO OPENED MONDAY, APRIL 18, 2011 & CLOSES THURSDAY, APRIL 21, 2011
 
SPECIALISED NBFC MFL SHOULD LIST WITH 30% GAINS AT RS 225 + 
 

Think Loan Against Gold…Think MFL….Two Rating Agencies,CRISIL and ICRA have given MFL a 4/5 IPO Rating indicating above average fundamentals with good growth

Promoter Pedigree

This is the third generation of Muthoots that are running MFL….and they too are either past retirment age or approaching it !

The First Generation, Ninan Nathai Muthoot set up a Trading Business in 1887…the Second Generation,M George Muthoot  set up the Gold Business in 1939…and the Third Generation of Four Muthoots have scaled up fast in the last three years and are taking MFL Public….The Four Muthoots are the Wholetime Directors and constitute 50% of the Board  which also has four Independent Directors

The Group has a host of companies across a host of businesses…from FM Radio Broadcating to Real Estate and Resorts

A Harder look at Promoter Intent & Mindset

Abetting in Private Equity Placement at Differential Pricing in the same month too ! 

But MFL is literally and figuratively the GOLD mine.Owned 100% by the Muthoots,the dilution to 93 % took place in the last year to Private Equity Players at Share Prices ranging from Rs 123 to Rs 173.50….including to Kotak Private Equity Fund and Kotak Investment Advisors….Kotak Bank too is a major financier of MFL receivables and Kotak Mahindra Capital is lead managing the issue.

Let’s  not start a debate here on Conflict of Interest and Investor Protection on Pricing and on who’s really steering the Ship here…the Promoters or the Private Equity Players and the Lead Manager !

But it’s amusing how Pricing can change significantly in the same month of preferential allotment…On September 8,2010  two Kotak entities invested at Rs 133…a fortnight later the same month on September  23,2010 Matrix Partners India Investment LLC comes in again at Rs 173.50 (earlier was at Rs 123 two months earlier on July 23,2010) this time with Wellcome Trust Ltd too at the same price….Clearly Opportunistic and Vested Interests at play here……… 

Reward Self damn well but not the key employees

What catches the eye is this….Every one of the Four Muthoot Directors are currently getting this from the company,while the Top Employees are paid a pittance…top Finance Guy got just  Rs 10 lakhs for the whole year !…while MFL remained private it was nobody’s concern really but now with it going public there are a few eyebrows surely that will be raised 

  • Basic Salary of Rs 20 lakhs every month with increments upto 25% in a year at the discretion of the Board
  • Special Allowance of Rs 20 lakhs a month
  • All Expenses paid for Housing,Travel,Telephones etc
  • Incentive of Rs 1.8 crs or 1% of the Net Profit before taxes and before applying this incentive whichever is higher to be paid at quarterly intervals….FY 11 should close with EBT of close to Rs 600 crs…so that’s Rs 6 crores for each Director as incentive….November 30,2010 results for eight months already shows Rs 12.8 crs debited to Directors Remuneration….  FY 12 should see an EBT of over Rs 800 crs…so that’s Rs 8 crs that will be paid out as Incentive to each
In addition they shall get a royalty from MFL for using the Muthoot Brand Name…more of this below
 
Top Key Employees of a 15500 + strong workforce get Salary packages ranging from Rs 5 lakhs to Rs 10 lakhs for the full year !…something is terribly skewed here…you do not build an Empire simply by rewarding yourselves alone !…If this issue is not addressed,you might soon see a Labour Union in MFL and a high attrition rate…this is a huge risk
 
Muthoot Trademark is owned by MFL but is intented to be reassigned to the Promoters by a rectification process that has already commenced
 
Muthoot Trademark and Logo is owned by MFL…it’s an Intangible Asset…a Brand that has great Value…as rectiification process for reassigning it to Muthoots is the method adopted,no valuation has been done…when this process is completed the Muthoots would grant MFL a non exclusive license to use this Brand for a royalty fee of 1% of gross income but not more than 3% of profit before tax (after charging the royalty) and managerial remuneration payable…this brand should have a value of several hundred crores atleast if not over a thousand crores at this time…Promoters would own this and no longer MFLMFL would have to pay for using it though !   
 
Liquidating some part of the Promoter Holding to Private Investors
 
On September 21,2010 Promoters have offoaded 3202128 shares at Rs 173.50 to The Wellcome Trust Ltd of UK to cash in Rs 55.55 crs…MFL also issued 1761206 Fresh shares at the same price to The Wellcome Trust Ltd ,UK on September 23,2010
 
The IPO & Pre IPO Placements
 
MFL is offering 5.15 cr Equity shares of Face Value Rs 10 in the Bookbuilding Price band of Rs 160 to Rs 175
 
Equity is currently Rs 320 crs and will move to Rs 372 crs Post IPO of which the Muthoots will hold 80.12 % .Networth which is estimated to be Rs 1251 crs at March 31,2011 will move to Rs 2142 crs with this Rs 901 crs Issue at top end price of Rs 175
 
It has just announced that it has successfully placed,the maximum allowed, 15 % of Shares on Offer to Eleven cornerstone Anchor Investors at Rs 170.These include Citigroup Global Markets Mauritius, Abu Dhabi Investment Authority, Goldman Sachs India Fund and Baring India Private Equity Fund 
 
The Issue will be heavily subscribed…The Qualified Institutional Body  Portion is 50% or 25750000 Shares,the Non Institution or High Networth Investors Portion is 15% or 7725000 shares while Retail Investors can apply for 35% of the Issue or 18025000 shares
 
The Retail Portion needs Rs 315 crs for subscription at Rs 175…Minimum Application is for 40 shares and then in multiples thereof.It is likely to attract over Rs 6000 crs…so even if you put in the maximum application for Rs 196000 (1120 * Rs 175),you’ll probably be allotted just 50 shares or thereabouts…If it lists at Rs 225 as expected in May 2011,the gains of Rs 50+ may look super at 30% absolute but it translates to just Rs 2500 !…on an application of Rs 196000 !…Annualised gains would be between 18% to 24%….some ponderables though !….may get a lower allotment than even 50 shares if retail portion is oversubscribed even more heavily than 20 times….may get a lower or higher price than Rs 225 on listing 
 
This is the Problem that Retail Investors face in a relatively Good Issue…Poor Allotments and insignificant Gains….this IPO will make you money…but not as much as it does the Promoters and the Private Equity Players….the Old Game being played out by a crafty Lead Manager !
 
Nevertheless,do go ahead and apply…monies otherwise are sitting earning far less in your Bank Accounts
 
Oh ! and don’t grudge the Private Equity Players who have cornered shares in preferential allotments …they carry a 14 month lock in  as per Shareholders Agreements or longer as per SEBI IPO Rules…Anchor Investors who have just received firm allotments at discretion of Promoters as advised and ‘controlled’ by Lead Managers have only a 30 days lock in…None of them get any Bonus Issue benefit…that was cleaned up by the Promoters,and they had the right to do so too, in two liberal issues of 7:1 on October 21,2008 and 36:7 on August 29,2009 after they had invested fresh Equity in 2006 and 2008 at Rs 250 per share 
 
 
MFL : Peer Valuations
 
   

Two Leading ‘Financing against Gold’ Companies

Company

Price

 in Rs

Book Value in Rs

P/BV

Estimated

 Total Income

 March 31,2011

Rs Crs

Estimated

Net Profit

March 31,2011

Rs Crs

EPS

Muthoot Finance

175

 58 *

 

3

1950

400

10.8

Manappuram General Finance

127

49

2.6

1100

250

6

Book Value and EPS adjusted for  FY 11 Profit Estimates * Post IPO

  

MFL is the Market Leader

There is simply no doubt MFL is the Market Leader in LAG Segment…Impressive…Have a Look

Market Leaders in ‘Loan Against Gold’ Financing Segment

Source : IMaCS Report updated 2010

Ranking

Lender

FY 10 Loan Book

( Rs Crs)

% of Market Share

1

Muthoot Finance Ltd

7342

19.5

2

Indian Overseas Bank

5220

13.9

3

Indian Bank

3920

10.4

4

Manappuram Finance

2560

6.8

5

South Indian Bank

2350

6.3

6

Muthoot Fincorp

2220

5.9

7

State Bank of Travancore

1930

5.1

8

Andhra Bank

1440

3.7

9

Federal Bank

860

2.3

As of November 30,2010,The Loan Book of MFL has climbed to Rs 13004 crs…It’s got a bigger share than even the big Southern Banks…and No ,Muthoot Fincorp is not a related company…so a potential and clear confusion and clash of Brand recall exists 

Interest Dynamics of MFL for the Eight Months at November 30,2011

Interest Income =>

Rs 1289 crs

Charged to Customer

Average 19.94 %

Interest Expense=>

Rs 583 crs

Cost of Funds

9%

Now that’s a fabulous mark up of 120% on Cost of Funds !…MFL simply plays the Numbers game with such  a great Net Interest Margin…It had 4.1 million accounts across 20 states (predominantly in the South),Delhi and Four Union Territories being serviced by 2263 Branches…it held 97.6 Tonnes of Gold as collateral…that’s worth over Rs 20000 crs against a Retail Loan Book of Rs 13004 crs.The Average Loan was Rs 31553 and Interest earned was an average of 1.67% every month….the Loan Book was funded by Muthoot Gold Bonds outstanding at Rs 3364 crs + Loans from Banks and Financial Institutions of Rs 4709 crs + Selling Receivables under bilateral assignments to banks of Rs 3246 crs….  

Network of Branches

As of February 28,2011 the branches were 2611,the accounts had swelled past4.5 million,the Employees were 15664 that served an average of 67953 customers every day in February 2011…there is no Labour Union…yet

Except 14 Branches which are owned by MFL,all Branches are rented or leased.It takes an average of Four to Six Weeks and Rs Five lakhs to Rs Ten Lakhs to set up a branch…each requires a Strong Room to hold the Gold Collateral plus a Burglar Alarm and Security Personnel Arrangements at high risk branches…Eight Months figures at November 30,2010 show the average cost of setting up a branch was Rs 6.5 lakhs read more

Young Daughter,Kunashni Parikh quoted in Times of India’s Mumbai Edition today in an article on Young Acheivers

 

My Daughter, and India Footballer,Kunashni’s Views on Young Achievers featured in a Times Of India article in today’s Mumbai Edition…author quotes her well except when she says she feels lonely at times…this was in context of being away from friends and family for three selection camps for India probables…each over a month long last year and she was the only girl from Maharashtra….and she finally made it !

http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDExLzA0LzIwI0FyMDE5MDM=&Mode=Gif&Locale=english-skin-custom

For AOL users: <a href=”http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDExLzA0LzIwI0FyMDE5MDM=&Mode=Gif&Locale=english-skin-custom”>http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDExLzA0LzIwI0FyMDE5MDM=&Mode=Gif&Locale=english-skin-custom</a>

TAP GAP Equity Poser 4/11…Does Muthoot Finance IPO look attractive to apply for in the Price band of Rs 160 to Rs 175?

Hip Hip Hip Hurrah ! Winner of the gauravblog hamper announced past midnight on Thursday April 21,2011 ….we have entered Good Friday…..thanks Swaroop,Tushar,Manoj,Raghavendra Ramachandra and Ramurthy for responding to this TAP GAP Equity Poser 4/11…..Tushar you ran close but the gauravblog hamper for this Equity Poser is won by RR that stands for Raghavendra Ramachandra…I know this as he send me the response by email too with his name…RR please email me your postal address and telephone nos…strong conviction comes through with some points that one cannot find in the RHP….well done

TAP GAP….. Equity Poser 4/11…Respond by Thursday ,April 21,2011

Winning Response wins the gauravblog hamper

Does Muthoot Finance IPO look attractive to apply for in the Price band of Rs 160 to Rs 175 ?

 

 

Two Leading ‘Financing against Gold’ Companies

Company

Price

 in Rs

Book Value in Rs

P/BV

Estimated

 Total Income

 March 31,2011

Rs Crs

Estimated

Net Profit

March 31,2011

Rs Crs

EPS

Muthoot Finance

175

 58 *

 

3

1950

400

10.8

Manappuram General Finance

130

49

2.7

1100

250

6

Book Value and EPS adjusted for  FY 11 Profit Estimates * Post IPO

Some guidance to respond to increase the probability of your’s being the winning response

Briefly support your views to explain why you think what you think…I’ve given a comparative table above to help you along…if you feel the brevity sought in the response box will not do justice to your views,you could first simply mention your Views in brief as a response to this blog and then detail out why you think so in a seperate email to [email protected] …Both will be considered

…so get your mind gums working….responses inside five days will be appreciated to help me select the winner from them by the time the IPO closes on April 21,2011.It opens Monday April 18,2011

Cheers !…and all the Best  

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