A Lion’s eye on the Bulls and Bears

“In India, companies may fall sick, but promoters rarely do!”

Gaurav's Blog


Month: January 2009

Firstsource Solutions from the ICICI Stable sinks below Face Value Rs 10….Why !?

Thx Anup for your response in the earlier Larsen Blog where you also requested for my view on Firstsource Solutions as it’s share price sunk to Rs 9.75,below face Value of Rs 10 for the first time ever 

I hope this blog gives you some clarity on this Company

It was clearly an Opportunistic IPO at a Heavy Premium in Bullish Times….Despite a Networth of just Rs 100 crs,excluding Goodwill,Firstsource Solutions managed to raise Rs 384 crs ,offering shares at a Price that was nearly 30 times the Earnings

Even the Objects to the Issue were General…Rs 180 crs for Acqusitions that were yet to be identified,Rs 45 crs to repay a Loan from ICICI Bank.Rs 46 crs for creating New facilities,Rs 89 crs for General Corporate Purposes and Rs 24 crs for Issue Expenses 

Two years ago on January 29,2007, ICICI Group promoted,Firstsource Solutions, came out with it’s IPO at Rs 64 ( Face Value of Rs 10 + Premium of Rs 54).IPO Size was Rs 443.50 crs with a fresh issue of 60 million shares and an offer for sale of 9.3 million shares by Promoter, ICICI Group 

The issue received an overwhelming response and was oversubscribed 40 times….with the QIB Portion @ 71 times,Retail portion @ 11 times and Non Institutional category @ 40 times

It was listed at Rs 90 on February 22,2007 and reached a high of Rs 93 on May 15,2007…Since then it has drifted lower and lower….As of December 31,2008,It’s Shareholder Pedigree boasts the likes of ICICI Bank Promoter group ( 26.74% stake) and Aranda of the Temasek Group,Metavante,WestBridge,Galleon Group,Seacrest ( collectively holding 55.33%)

What has hit this pure play BPO Outfit ?……It’s simply the FCCB Exposure of US $ 275 Million and the effect of the Rupee Depreciation on it that is causing the sickness

The company has adopted AS 30 in FY 09 from July 1,2008 much before it becomes mandatory in FY 2012.It has designated the FCCB as a Hedging Instrument for it’s Net Investments in Non-Integral Foreign Operations.This requires it to debit any translation loss on the FCCB in event of the Rupee Depreciating to  a specially denominated Transalation Reserve and not through the Profit and Loss A/c…However the difference between the Fair Value of the Debt and the carried Value should be written off in the P & L A/c.Also any premium or discount on Forward contracts on hedged positions should be routed through the P & L A/c .Premiums to be paid on redemption have to be amortised over the life of the bond against the Share Premium Reserve  read more

News X Channel just showed a Protest Rally in New Delhi… Did you notice that all the Indian Flags were being carried upside down with the Green Band on Top ! by Thousands of Azamgarh Protestors !

Thousands of Muslim Men and Boys have come down to New Delhi  from Azamgarh in Uttar Pradesh to protest against labelling their youth from Azamgarh as terrorists

I was at first inspired to see them in Indian solidarity by carrying many Indian Flags…. till i was shocked when I noticed that ALL the Flags were being carried upside down with the Green Band on Top !

This is an Insult to our Indian Flag and I sincerely hope that this was an inadvertent mistake by these Men from Azamgarh and not a deliberate act on their part… but, as Indians, should they not know our Flag !?

They have a Six Point Memorandum that they want to hand over to the Home Minister and urge him not to round up Azamgarh Youths as  suspected terrorists and to give a  fair trial to those in custody and compensation to those acquited

Ashish Dhavan of Chrys Capital appears on NDTV Profit and calls Larsen Courageous for it’s aggressive pursuit of Satyam!… Really Ashish!?

Knowing  how Ashish Dhawan, of Chrys Capital,cornered Suzlon shares (even became it’s Director !), with Ajay Relan of Citicorp as an ally and later sold off  some part to Government of Singapore… all at a dirt cheap placement price and all done before the Suzlon IPO, I was not really surprised at what he just came and said on NDTV Profit today on Larsen’s Bid for Satyam… I had blogged earlier on these Suzlon placements… Check out https://www.gauravblog.com/?p=393 

Ashish Dhavan thinks Larsen is courageous in aggressively pursuing Satyam when all others are concerned with the risks !… Ashish,should we not be concerned with the risks !,especially when they are clearly in the high risk category ?… or, like you possibly had in Suzlon, and in your gameplan, made a killing of Thousands of Crores at the expense, I daresay, of Indian Investors, do you too, like perhaps Larsen does, have some price sensitive Inormation on Satyam’s contingent liabilities, that we do not !?… On what basis are you defending Mr A M Naik and Larsen in their bid for Satyam !?… they’re, in all probability, merely trying to save face on a ‘mistake’, probably by making another one ! 

Is Larsen Courageous or Foolish in increasing it’s stake to 12% in Satyam? Check an earlier blog on this.

What a call !… Should you be Buying or Selling Larsen and Satyam !?

I have been receiving serious queries from friends, relatives, acquaintances, clients and associates on Satyam and Larsen…. In light of what has happened and is happening and will happen should we Buy, Sell or Hold Shares of these two Companies !?

Really Ironic and Amusing that as Larsen averages a rising Satyam to save face and reduce it’s high holding cost, you want to average a falling Larsen for the same reasons !

Let’s take one Company at a Time


Along with it’s Promoter,Ramalinga Raju,Satyam’s Share Price too fell from Grace to levels of Rs 15 from Rs 225 in mid December… It’s been rising since, to Rs 52 today, as Larsen keeps making a strong pitch to buying it out and has already committed Rs 600 crores for a 12% Equity Stake

I had strongly warned you to sell off Satyam in my Dec 17, 2008 Blog at Rs 162 just a day after the Maytas proposal was announced by the Satyam Board and withdrawn overnight… stating that the share price will sink further and that Ramalinga Raju was a Goner !… This was much before he made his confession on January 7, 2009 

At Rs 52, Satyam is reviving with Larsen support… If you wish to Hold or are even contemplating Buying Into Satyam, then be cautioned that you have to take the risk like Larsen is doing, in assessing that Satyam will bounce back and the Hundreds of Millions of Dollars of Contingent Liability on account of Class Action Law Suits in USA  will not materialise… Larsen seems confident… I don’t… Maybe they know something I don’t… refer to earlier Satyam and Larsen blogs for more on this !

So would I sell Satyam at Rs 52… At Rs 15, I would have taken the risk to Hold but now at Rs 52, I would begin offloading in tranches… but then again my risk profile may not be yours and you may be willing to take the Risk that Larsen is taking by Investing in Satyam


It’s ,without any doubt,India’s Super Icon of Success and Scale…Of course it should be in your Equity portfolio

Problem is that most of you already hold this Share at a high Holding Cost of nearly Rs 2000… In the macro meltdown in 2008, Larsen had sunk towards Rs 800… However after it disclosed that it had purchased 3.95% Equity Stake in Satyam between December 23, 2008 and January 6, 2009 at an average of Rs 174 and after the Maytas Proposal Fiasco, It’s Share Price has sunk to below Rs 650 as market and shareholders clearly disapproved of this continuing ‘Mistake’ of Investing in Satyam. read more

Larsen’s CMD, Mr A M Naik tries to justify increasing stake to 12% in Satyam

This is a gist of the Conference call that Larsen organised today to justify and clarify the 12% stake in Satyam

  • L&T management clearly stated that L&T is no longer just an E&C company. It’s businesses span a range of activities in manufacturing as well as services, including heavy engineering, manufacturing,  power, process engineering and financial, IT and engineering services.
  •  L&T Infotech, with revenues of US$400mn in FY08, has been in the IT services business for 10 years and hence, the acquisition of a stake in Satyam is not an unrelated diversification for L&T.
  • L&T acquired the 1st tranche of 3.95% stake in Satyam after the announcement and subsequent cancellation of the proposed acquisition of Maytas Infra and Maytas Properties by Satyam, but before the news of fraud by Ramalinga Raju was announced. The average market price of Satyam at which the stake was acquired was Rs 174/share.
  • The 2nd round of acquisition of ~8.09% was completed on January 23, 2009 at an average price of Rs 34.share. L&T now holds a 12.04% stake in Satyam, at an average price of Rs80/share.
  • The initial stake was acquired with an intention to form a strategic alliance with Satyam for targeting clients jointly, especially in areas where L&T Infotech and Satyam were competitors.
  • On disclosure of the fraud by the ex-Chairman of Satyam, L&T decided to increase its stake with a view to preserve the value of the already acquired stake and to have a say in any major action the new Board of Satyam would decide about the company’s future
  • L&T’s decision to acquire the additional stake was based on its assessment (and feedback from various stakeholders in Satyam) of Satyam’s demonstrated track record, trained manpower and valuable client relationships.
  • L&T believes that major clients are unlikely to terminate contracts for two reasons – one, most clients are satisfied with Satyam’s services and would likely continue if issues of governance etc are addressed wby the new Board and two, the prohibitive costs of transition to new vendors.
  • L&T’s decision to increase its stake was also in part, influenced by the knowledge gained that Satyam did not have any debt on its books and all its properties were mortgage free and that Satyam has in its possession, 250 acres of land with clear titles.
  • On potential/contingent liabilities, L&T management is reasonably confident of no material impact of the UPaid case on Satyam. However, the management is yet to assess the impact, if at all, the class action suits filed against Satyam in the USA.
  • L&T has acquired the 12.04% stake in Satyam through L&T Capital, which is the designated vehicle for acquisition of all such strategic stakes.
  • The other strategic acquisitions made by the company in the recent past include NIIT Technologies (~5% stake to access markets in Europe where NIIT has a strong presence) and Kalindee Rail Nirman Engineers (~14.5%, to leverage Kalindee’s capabilities in EPC and allied services for Railways).
  • The management clarified that the Satyam acquisition, being strategic in nature, L&T Capital will not be providing for any MTM losses in its books.
  • read more

    Connection between having ‘No Wisdom’ and an unshaven and unkempt white stubble !

    It’s been a long three day weekend and I have been just too lazy to shave

    Wife commented on my unshaven and unkempt white stubble….” Why is it that you have Black Hair on your Head, but your Stubble is White ! ?

    She answered it herself, rather tongue in cheek, I might add, “You seem to be following the “Bottom Up Approach” and Wisdom has yet to reach your Brain !”  

    Very Funny! My Dear!…but thanks for atleast recognising I have one!… Just Last week you dismissed me, saying “You have No Brains!” when I wrote your Name on my arm and showed it off to all !….. After all it was you who provoked me to be inspired by the Love and Passion that Saif Ali Khan demonstrated for Kareena by tatooing her Name on his arm !…. What did I do wrong ?.. You had made me erase ‘Kareena’ when I did exactly what Saif had done !

    I tell her, that with this state of Markets it’s more of a ‘Bottoms Up’ Approach… the ‘s’ in ‘Bottoms’ makes that huge difference and it’s not to say ‘Cheers !’… it’s more a  ‘Ghazal’ling Blues sort of ‘Bottoms Up’

    Let me tell all of you ! Marriage is the Only War where you have to sleep with the Enemy !

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