Toll Free Court Order has Noida Toll Bridge Toiling down over 35% to Rs 14

Disclaimer at the Outset ~ This Blogpost is not a Recommendation but only an endeavour to interpret what is in the public domain given the latest developments  & to thus spell out risks that have played up.I intend to showcase this at my Equity Training Sessions 

Toll Free Court Order has Noida Toll Bridge Toiling down over 35% to Rs 14

I have never been a fan of Noida Toll Bridge for many years now for two straight reasons :

1-Corporate Governance ~ In November 1997 a Service Concession Agreement for the Noida Toll Bride and Mayur Vihar Link Road was entered into by the Company,it’s promoter IL & FS & NOIDA,UP Govt.Its been a huge controversy since inception in both granting the Concession to IL & FS company Noida Toll Bridge & the subsequent padding of  recoverable Project Cost which incredulously kept being padded every year even after completion because of the absolutely deliberately lenient Agreement Terms that allowed this for any designated returns ( a high 20% pa) that were not attained in the year.There was no cap on Operational Costs too in the Agreement & this allowed the Company to present poor returns and thus pad up project costs to be recovered.Much of the Operational Costs found their way into higher Salaries,Commissions & Perks for the retired IAS Officers who had founded IL & FS and this Company. The Spirit of the PPP was severely dented .Private Benefits at the expense of the Public.Project Costs that should have been @ Rs 200 crs balloned to over Rs 408 crs & then padded up to over Rs 1000 crs !….it was a unprecedented CAGR of designated returns yet to be recovered ! that allowed the company to collect till infinity even beyond the at least 30 year concession granted in the November 1997 agreement.It was only last year on July 9,2015 a modified agreement froze the amount payable as on March 31,2011 & terminates the Agreement on March 31,2031.The Company also has development rights under the Agreement but it has not yet recognised these in their Financial Statements.These could amount to Hundreds of Crores in itself.

2-I saw it as a range bound stock with no serious capital appreciation and just dividend yield, as it’s model was simply just toll collection &  then dividend payments once it broke out in 2010.Predictable Flows & DCF captured the range valuation. The expectations of non linear flows through recognition of Development Rights did inflate share price once or twice but till date this has not happened & given Allahabad court order to stop charging user fees now arises a ? mark if at all will they arise.The Court however has upheld the Concession Agreement but ruled inoperative the collection of any levy or Toll Fee

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Jio ! Reliance ! Jio! @ Rs 1000

Reliance Underperformance
Reliance Underperformance

Over 2.6 million shareholders retain faith in Reliance Industries despite the clear underperformance  over the years

Tum ‘Jio’ hazaron saal,hazaron kay aar paar ?  🙂

Aswath Damodaran~Margin of Safety is an excuse for Inaction in risky times!

Chanced upon this latest from the well known Prof Aswath Damodaran who teaches Corporate Finance & Equity Valuation at the Stern School of Business in New York

Makes interesting reading as he expresses quite vividly the doubt our minds are occupied ,rather tortured with, when engaging in Valuation exercises in uncertain & risky times as now and how we deal with these

Here’s a Sampling of his mind in verbatim:

~”When stumped for answers, we almost invariably turn to others that we view as more knowledgeable or better equipped than we are to come up with solutions. Cynically, you could argue that this allows us to avoid taking responsibility for investment mistakes, which we can now attribute to consultants, text book writers or that person you heard on CNBC”

~”investors and analysts like to use rules of thumb, often with no basis in fact or reality, when making judgments”

~”the more uncertain you feel about individual investments, the more you have to spread your bets. It is not an admission of weakness, but a recognition of reality”

~”I am afraid that the margin of safety, at least as practiced by some in the investing community, has become an empty vessel, an excuse for inaction rather than a guide to action in risky times”

~ “being comfortable with uncertainty may very well be the edge that separates success from failure in investing”

😆 And you got to pat him for this :

~ ” I am wrong a hefty percent of the time, but so what? It’s only money! I am just glad that I am not a brain surgeon!”

Opprobrium~Harsh Censure~ Charlie Munger thrashes Valeant Pharma calling it a sewer

Warren Buffett and Charlie Munger

Came across the use of Opprobrium in context of the shaming the conduct of  Valeant Pharmaceuticals, once the darling of Wall Street

It stands for Harsh Criticism or Censure or public disgrace for shameful conduct…. Valeant has been accused of Price gouging, secret network of speciality pharmacies & fraud  

Always loved the Bluntness of Charlie Munger ,Vice Chairman of Berkshire Hathaway.He’s 92 now and his words carry huge weight

Yesterday at BH’s AGM in Omaha,both Warren Buffett & he took on pre-selected questions for several hours.This Q & A is one of the most awaited sessions at the AGM

A question was asked on Sequoia’s Investment in the embattled Valeant Pharmaceuticals.Warren likes Sequoia but their decision to invest in Valeant was unfortunate  & the manager who made that decision has been fired

Here’s what both Buffett & Munger said on Valeant yesterday

Charlie Munger ~ “Valeant of course was a Sewer and those who are directors deserve all the OPPROBRIUM they’re getting”  

Warren Buffett ~ In my view the Business Model of Valeant was enormously flawed…….one can see patterns of ‘Chain Letter’ Wall Street Schemes….If you’re looking for a manager you want someone who is intelligent, energetic, and moral.But if they don’t have the last one, you don’t want them to have the first two”

In 2015 William Ackman whose Pershing Square Fund has been much maligned for supporting Valeant and taking a huge equity position of @ 9% equity stake in it had sought Warren Buffett’s help in seeking an appointment with Charlie Munger with the then CEO of Valeant,Michael Pearson.Buffett directed Ackman to connect directly with Munger. Munger did not respond…..Pearson is just out and Valeant has a new CEO Joe Pappa

Valeant Pharma’s Share Price  is just under US $ 34 today with a fallen market cap of US $ 11.45 b.It’s crashed from a 52 Week High of US $ 263.81 ! but up from a 52 week low of @ US $ 25

Interestingly,Aswath Damodaran,the Valuation Guru has recently worked out a Value of US $ 43.66 for Valeant with Share Price level at US $ 32 and thinks it’s an emphatic buy ofcourse with caveat.He has taken a position

This has always been my pet theme of debate with many who grudgingly respect my principles but in the same breath think I’m foolish to let go a brilliant investment opportunity !

“Should you always shun a Company which has demonstrated serious lapses on Corporate Governance even if the Share Price & Objective Valuation beckon to buy?”

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A Dose of Rakesh Jhunjhunwala

Rakesh Jhunjhunwala on Future of Equity Market

Methinks every Indian Equity Investor needs a dose of Rakesh Jhunjhunwala (RJ) every few years! ~ any sooner it could be an Overdose !  😆 ~ just kidding !

I like the guy ! ~ right since I interacted with him when I invited him around 15 years ago at the turn of this century for interacting in an evening  Q & A session with my packed class of @ 90 participants in my Equity Portfolio Structuring and Stock Analysis Workshop at the BSE Training Institute as I thought he would add practical value & he did

“Boss ! I’m a Sadak Chaap ! ”  he had told us then as also how he had reconstructed his equity portfolio to concentrate only in a few stocks after the 2000 ICE debacle…so in a sense most of his Wealth has grown only in this Millennium in the past 15 years ~ and to his credit in Selections that were not really Blue Chip or Core

Yesterday had gone for an  IMC interactive meet in Mumbai to check out if RJ has sobered & matured in his ‘manner of speak’ over the years ~ I rarely watch Stock Channels ~ don’t even have a TV in office~  so was not really conversant with how & what he delivered in his appearances though knew of his initiating big stakes in companies

I am delighted to blog he has not changed ! ~ shot straight from the hip & mouth again as he always does ” I’m a satodia(translated to mean speculator)  & investor & not an economist” ~ his investment portfolio has spread into the Alternatives of  Bollywood Movie Production too with Kareena & Arjun starrer ‘Ki & Ka’ being his latest co production~ is into horse racing too and owns a few horses ~ passions perhaps where return on investments need not be measured in monies !?

Many perceive him as Dehati or Crude Dude for his rustic loud boorish way of speech~ but don’t let it fool you ! & he does not make any pretenses ~ he’s a CA by training & wears a fairly sharp mind

Money Talks & Crowd Laps it up all !~ many vigorously & ‘knowledgeably’ nodding in agreement

These RJ’s views & responses to questions posed should interest you :

On The Future of Equity Markets ~ Reiterates this is only the Trailer & we are going to witness a Mother of all Bull Runs.India is a thriving young Democracy with US $ 600 b in Savings every year.Equity Markets receive just US $ 50 b from this.This has to improve and it will ~ anyone ,any  doubt!?   

On Returns from Equity  ~ Ironically while his riches have been through multibagger 1000% + equity gains in concentrated high weightage stocks like Titan & Crisil he asserts that one should be happy with 18% CAGR gains and if it goes to 24% one should be really happy

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Kotak Group again enters beleaguered Diamond Power Infra at Rs 23.65 ~ Why?

Kotak Group enters beleaguered Diamond Power Infra at Rs 23.65 ~ Why? ~ their Mutual Fund  had been selling since August 2015 !

On March 30,2016 Kotak Mahindra (International) Ltd a FPI & a subsidiary of Kotak Mahindra Bank picked up 3868606 (6.787%) stake in Diamond Power Infrastructure at Rs 23.65 from Macquarie Bank.Deal Size thus was Rs 9.14 cr with Macquarie exiting fully

Why did Kotak buy in ! ~ as just a month ago the Trustee of Kotak Growth Fund II & PAC had notified the Exchanges that from August 2015 to March 2016 the Fund had sold 1215382 shares ( 2.13% stake) from the 3002946 shares held (5.27% stake).Over 2% had changed hands on March 2,2016 …unless these were inter scheme or within group transfers by the Mutual Fund

The above Notifications already were on the Exchanges websites but only today has the Counter seen a smart rise by over 15% to register a days’s high till now of Rs 27.95.At 12.40 pm it’s trading higher at 12% at Rs 26.60. Trading Volumes have been below One lakh most days in the Year but till now they have crossed 4 lakh on BSE and 18 lakhs on NSE

Diamond Power Infra is an interesting & intriguing case study.It’s been a rapid Wealth Destroyer of 75%  inside five months from Rs 143 levels in November 2014 to Rs 37 in March 2015 …it never was a 24 Carat Diamond ! but you can say it had all but lost whatever Carats it was ! 

Over 10 years ago  in 2005 Diamond Cables (IPO at Rs 10 par way back in August 1993),the earlier name of Diamond Power Infra, was trading low at @ Rs 17 and I spotted a turnaround when it  notified the BSE that they had the second largest cable capacity after Sterlite but were functioning at just @ 15 % capacity due to a working capital crunch.It was negotiating to receive both loan & equity support from Clearwater Capital Partners.The Deal for Zero Interest FCDs & Warrants was announced a year later in August 2006 when Price levels had shot up to Rs 60 and CCP would be getting the shares at Rs 95 on conversion…Then the Share Price simply went into 10 Bagger space inside two years recording highs of Rs 589 in 2007 & Rs 599 in 2008…. I had not waited for these record highs……. so the real wealth Destruction has been immense at the extreme of 96% from Rs 599 to Rs 22 !….even adjusting for 1: 3 Bonus in August 2013,the destruction is 95%!….CCP brought some more at fallen levels of Rs 160 levels 2010.It exited at a Loss in  June 2014 at Rs 90  & just a few months ago at a bigger Loss in December 2015 at Rs 42.68

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