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

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January 22, 2009

Supported by a rise in Other Income,Reliance Industries reports a respectable net profit of Rs 3501 crs in Q3

For Reliance Industries’s Q 3 Profits for the Q ended December 31,2008,few estimates were over Rs 3500 crs…some were even below Rs 2700 crs and the consensus revolved around Rs 3000 crs

Despite an expected drop in Margins,Revenues and Profits to reflect challenging times,Reliance,true to form,showed a respectable profit of  Rs 3501 crs in Q 3 against Rs 3882 crs yoy,supported by an increase in Other Income from Rs 241 crs yoy to Rs 641 crs

Gross Refining Margins are US $ 10/barrel.Cash and Cash Equivalents are Rs 28500 crs.Revenues are split 37% and 63% between Petrochemicals and Refining

Reliance may fail to notch an EPS of Rs 100+ for FY 2008/9 on fully diluted equity of Rs 1580 crs as it is unlikely to notch up profits of Rs 16000 crs for the full year.Gross Refining Margins and Quantum,if any,of Hedging or Speculative Loss on Oil Price Plays holds the key for profits that will be reported  for this Q 4 

Back of the Envelope Valuation on Earnings Multiples

Unless we are confronted with a shock on Derivative Losses on Oil Price Plays,even if camouflaged as Higher Cost Inventories,the likely EPS for FY 09 would be in the Rs 90 to Rs 95 range.At Rs 1136 closing today,the multiple would be @ 12.With expectations of Krishna Godavri Basin Gas contributing to revenues and profits from FY 10 and without much equity dilution,the Forward EPS estimates for FY 10 revolve around Rs 115…Applying a Multiple range of 7-14,the Share price Range in 2009 should be Rs 800-Rs 1600 and will depend on prevailing seniment and Earnings in FY 10.For Reliance to race away back towards Rs 2000 in 2009,a better sentiment has to prevail in the Markets to facilitate a higher multiple than 14…this is unlikely to happen anytime soon

Looking at the Downside…if the Sensex,currently has gone yet again below 9000 and is at 8800 levels, seeks to sink even below 7000 sometime in 2009,then Reliance will fall in sync towards Rs 800 with forward multiple falling to 7…unless global markets get hysterical and unless Reliance shocks with some significant scam,I don’t see Reliance below Rs 800 in 2009 or above Rs 1600 for that matter.It closed at Rs 1136 today.Results came in after market hours,so expect some rally tomorrow.   

Educomp’s Share Price Slumps as Bears orchestrate a Mauling

Educomp appears to be a victim of Bear Market Manipulation…After Satyam,the Markets have been expecting some more companies to be exposed….So when the Daily Pioneer came out with an adverse story on Educomp and it’ Promoters,the Share price simply collapsed to a low of Rs 1375 yesterday from above Rs 2100 on January 19,2009…Check out this story on

http://www.dailypioneer.com/151227/After-Satyam-Educomp-under-scanner-for-fudging-accounts.html

The journalists have raised questions on a host of issues…one of them is that the Promoters have made a lot of money by trading in their own shares between 2006 and 2008

First and Foremost it is not illegal for a Promoter or Top Manager or Director to reduce his Holding.A M Naik,CMD of Larsen,Narayan Murthy of Infosys….they all have sold off some part of their holdings to arrange Funds that they may have needed or to balance their portfolios …it may also have been that they may have thought that the Share price had run away too much ahead of Fundamentals and so they took advantage by selling…There is nothing wrong in this,unless it is out of the Ordinary

In this Context,Educomp’s head,Shantanu Prakash has come forward on business channels and frankly answered a lot of questions…he has also lodged a complaint with the Economic Offences Wing that somebody is out to create panic for Educomp Share prices and is spreading rumours to bring the Price down

If you recall,a few months ago,ICICI Bank share Price too had tumbled overnight and MV Kamath had filed a Complaint with the Police as well as with SEBI that some sub broker had send out 30000 smses bearing adverse new of ICICI Bank…The objective was that a ‘cartel’ wanted to bring the Share Price down…SEBI investigated but reported that there was no evidence of such a wrong and illegal practice 

Interestingly Wall Street Journal just carried a topical article that warns that White Collar Crimes may jump significantly this year as economic and financial market turmoil lead many to deviate from moral and proper activities to keep up the revenue stream or make a quick buck.

It refers to a ‘Global Fraud Report’ just released by New York based Risk Consultancy Firm,Kroll Inc.It warns of unscrupulous form of short selling where brokers and traders form ‘loosely organised cartels’ to start negative rumours about a company whose shares they are betting against

What happened or is happening to Educomp may just be this ! read more

Some Jay Leno Chuckles on Wall Street & the US Economy Meltdown !

Jay Leno , who hosts his talk show which you can catch on Zee Studio,is famous for his one liners…Here are some chuckles on the US Stocks and Economy Meltdown

  1. The US has made a new weapon that destroys people but keeps the building standing,. Its called the stock market 
  2.  Do you have any idea how cheap stocks are ?? Wall Street is now being called Wal Mart Street
  3. I want to warn people from Nigeria who might be watching our show, if you get any emails from Washington asking for money, it’s a scam. Don’t fall for it 
  4.  Bush was asked about the credit crunch. He said it was his favourite candy bar 
  5.  The rescue bill was about 450 pages. President Bush’s copy is even thicker. They had to include pictures  
  6.  President Bush’s response was to meet some small business owners in San Antonio last week. The small business owners are General Motors and General Electric

Larsen Desperate to Save Satyam !..to save itself !

On January 9,2009 I had blogged that Larsen has jumped the Gun in Investing in Satyam and has lost over 85% and over Rs 300 crs in just two days after Ramalinga Raju’s confession on January 7,2009

Check it out again.Click on https://www.gauravblog.com/?p=431

I had even suggested a possibility that Larsen had picked up the Satyam Promoters pledged shares sold by Lenders…and perhaps Ramalinga Raju awaited this sale before making the Confession

A response to this blog that there could be a possibility that one of the Lenders was related to one of the Directors of Larsen and this Lender was bailed out by Larsen Monies by buying out their Pledged Shares got me thinking

I checked the Larsen & Toubro Annual Report and found that the Whole Time Director & Senior Executive Vice President and CIO in charge of IT and Technology Services is one Mr V K Magapu….Larsen’s Investment of over Rs 400 crs by purchasing 2.69 cr shares to take a 4% Stake in Satyam,even after the Satyam -Maytas Controversy was still burning,despite reversal of the proposal,defies Commonsense and Sanity.As CIO and in charge of IT and Technology Services,Mr Magapu surely must have been involved in recommending this Investment…Why ! ?….On Confession by Ramalinga Raju on January 7,2009,Larsen’s Investment in Satyam eroded over 85% in just two days and Larsen is now sitting on a Notional Loss of over Rs 350 crs !

Chairman & Managing Director of Larsen & Toubro,Mr A M Naik must have slept well only till the night of January 6,2009….he ‘s been desperately trying to save his Investment in Satyam by offering to buy out Satyam ! He’s galvanising support from Institution shareholders like LIC and even the Ministers and is making a presentation to the New Board of Directors of Satyam today and tomorrow

What Timing ! Mr Naik just received the ET Business Leader of the Year Award last week and this Satyam Loss !

Naik needs to explain why did Larsen,perceived by all as being responsible, conservative and risk averse in it’s operations,dare to venture into controversial Satyam by buying shares from December 23,2008 to January 6,2009…Do Vested Interests exist? Also why this turnaround now !? After Ramalinga Raju’s Confession on January 7,2009 Mr Naik came on the business channels to assure that Larsen was merely an Investor in Satyam and had recently got a 4% stake and had no plans to buy it out or increase it’s stake ! read more

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