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A Lion’s eye on the Bulls and Bears

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

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February 2009

Breaking News ! ….RIL and RPL Boards to Meet on March 2,2009 to consider and recommend that RPL amalgamates into RIL!

Ambanis of Reliance have adopted this modus operandi without fail the past 25 years…They create new companies for similar business…and when they commence production,they amalgamate them into the Parent, RIL…in a sense give birth to Children and bring them back into the Parent fold

So I was not surprised at all when the Breaking News  hit that the Boards of RIL and RPL are meeting seperately on March 2,2009 to consider and recommend the amalgamation of RPL into RIL…In fact for years I have been stating that this will inevitably happen…What must have pushed RIL now is that the Margins are under pressure in both, RIL and RPL, and RIL is carrying Huge Inventory losses as it had entered into Oil Contracts at US $ 120+ per barrel in mid 2008…Oil is now crashed to just over US $ 40 per barrel…Clearly RIL sees Cashflow,Tax,Valuation,Scale and Leverage Synergies in this Amalgamation  

This Breaking News will Break RPL Shareholders…Closing Prices,adjusting for a possible fall in the price of RPL on Opening on Monday and adjusted Book Values indicate an amalgamation ratio of 1: 20

RPL Shareholders will not get to see really how much RPL really makes on the bottomline in it’s first full year of production !….This is the devious part really……Falling Gross Refining Margins would have meant a very low bottomline for RPL….With Equity at Rs 4500 crs +,it would have been seen as a loss of Group image in not being able to service the equity 

The April 2006 IPO of RPL was at Rs 60…That’s where the price will settle…It may sink even lower…Current Price is Rs 76 while RIL closed at Rs 1265

As a stand alone Refinery,RPL would have got Earnings Valuation Multiples of much below 10….and much below Overseas Peers….FY 2010 would have shown Earnings in the low range of Rs 2 to Rs 4…despite a low floating stock of under 10%,the share price would have reacted quite sharply…With the amalgamation this scenario will not play out

Long Term RPL Shareholders have been short circuited…Just think about this !…in April 2006,you invested in RPL at Rs 60…assuming the ratio is 1:20,your cost of the RIl Share would work out to Rs 1200 right now…in April 2006,RIL was Rs 825-850 at the time of the RPL IPO

So,in April 2006 if you had invested in RIL, and were yet holding the shares you would have made 50% + gains…Twice that you would have made by investing in the RPL IPO at Rs 60 and yet held the share read more

We need Long Term Structured Option Contracts…need to LEAP into LEAPS

I was just wondering…..Currently there is so much volatility in all markets,be it Equity or Commodities…due to earnings uncertainties,anxieties about health of global economy and Financial Systems

Most Experts are advising to think Long Term…Naturally…3 Years + atleast

Then why is it that we have Derivative Contracts structured only for a maximum of Three Months… for Long Term,we need to roll them over and over and over and over again ?

It’s time that we introduce Long Term Option Contracts…This will enable me to take a call on the Markets or a particular Stock or Commodity for a period of One Year and more by investing merely a fraction of what I would have to now in Spot

For example If I felt the Markets would improve in the next two years,I could buy a Nifty Call at Strike price of 2750 (Current Level) that expires in 2011 at a Premium of ,let’s say,Rs 225…Assuming Contract lot is 50,the contract Value is Rs 137500 and I would have to pay Rs 11250 as premium…That is my Cost….I now have the right,but no obligation, to exercise this Call

So if ,let’s say,Nifty moves up and is at 4000,somewhere in mid 2010,I can square of my contract and sell the Call,at a premium of let’s say,Rs 1025 and profit by Rs 800 which aggregates to Rs 40000 on the contract…a return of 356 % in a year or so !

The above is a hypothetical example and it can be argued that Option Premiums may quote at much higher % levels in this volatility…The Nifty Call of Strike 2750 may not be quoted at 225…but more at 500 perhaps or even more !…that’s an 18% premium !   

Chicago Board Options Exchange (CBOE) has a registered product on these lines and they have trademarked it as LEAPS.It stands for Long Term Equity Anticipation Securities…This product is available in the form of Calls and Puts for 450 common stocks and Ten Indices and the Expiration Date can extend upto 39 months…In fact CBOE even has the VIX or the Volatility Index Options which is the market estimate of expected volatility and is which is computed from realtime  S & P 500 Index Option Bid/Ask quotes  

I believe the SEBI Advisory Committee for Derivatives has already suggested the introduction of Long Term Derivative Contracts…Why the delay in the Suggestion being adopted for Implementation ? The Operations Framework by Exchanges is already in place for Futures and Options so this should facilitate the Introduction of Long Term Expiration Contracts fairly easily   read more

India’s Power Generation capacity is 147403 MW…Deficit is 20000 MW

As of December 2008,the Central Electricity Authority (CEA) reports that India’s Power Generation Capacity is 147402.81 MW,up 8651 MW from 2007…India continues to reman a power deficit country…Current Deficit is 20000 MW

NTPC,a leading PSU, is the biggest  generator with 28333.99 MW from the Eleven Central Sector PSUs…It may be recalled that Reliance Power,in the Private Sector, has plans to generate 28000 MW by 2016…By Then NTPC capacity would have surged pass 65000 MW

The Eleventh Five Year Plan 2007-2012 has a revised planned creation of 92000 MW…But with India targeting high single digit GDP Growth Rate over the next several years,the demand for power too will surge…It will be only in the Twelth Five Year Plan 2012-2017 that the power demand and supply curve will cross

Mckinsey in their report ‘Powering India-Road to 2017’ estimates that the Power Demand  will be 335000 MW in 2017 …Interestingly last year,amidst great controversy and opposition .both in India and in USA,both countries signed a Nuclear Treaty to facilitate purchase of Uranium by India and setting up of Nuclear Reactors for Civil Purposes  

The Breakup on various parameters of India’s Installed Power Generating Capacity of 147402.81 MW makes interesting reading


By Mode

By Sectors

By State






















Andhra P






Central PSUs









West Ben



























 Some Observations

  • Thermal Power Generation is 2/3 rds of the Capacity
  • Hydro Power Generation is 1/4 th of the Capacity 
  • Coal Based Plants at 52% are over half the Capacity
  • Much Hyped Mode…Nuclear Power plants currently contribute less than 3% of Capacity…even with the implementation of the controversial Indo -USA Nuclear Treaty,this percentage will only marginally go up to @ 5% in the next Ten years
  • Renewal Sources contribute under 10% of Capacity currently…There is great potential to increase this percentage to reduce dependency on Coal,Oil and Gas Sources 
  • 85% of Capacity is from the Public Sector
  • The role of the Private Sector may assume more focus and it may contribute more in the future than the current 15% to Capacity 
  • Of 28 States and 7 Union Territories,Maharashtra leads with over 7% of Capacity

An additional capacity of only 8651 MW was created in 2008…To achieve Five Year Plan Targets,the incremental annual capacities should be close to 18500 MW…otherwise it may take much longer than 2017 for the demand/supply curve to cross

Major Constraints in Developing the Power Generation Capacities have been

  • Government Equipment Procurement Procedures 
  • Project Implementation Delays
  • Saturation in Capacities of Engineering Companies in Setting up of Power Plant Infrastructure and delays in their increasing their Capacities
  • Delay in Allotment and Development of Coal Mines…largely on account of delays in land acquisitions and in obtaining government clearances and  multiple mine allottees for the same mine
  • States Dominating the Distribution of Power…State Electricity Board ( SEB) Losses are legendary…it impedes the State’s capability to invest further to augment existing capacities and also discourages Private Investors from providing Capital to do so….Distribution Losses are reportedly a criminal 40% of generated and transmitted Power

If India has to Grow to be one of the top Three World Economies in the next Two decades,as is expected, Power Capacities have to scale up significantly and fast…Government is well aware of this and has been introducing Power Reforms…The Electricity Act of 2003,CERC,Exchanges for Power Trading,Privatisation to highlight a few

Despite constraints,some  due to  coalition politics,the Power Sector has the Power to  create  Multifold Gains for those who invest in this sector as a Business or even  just as an Investor…but these will play out over the Long Term…Ten Years and Beyond

Consider three Listed PSU Power Plays for your Long Term Portfolio…BHEL,NTPC and PTC…You’ll get an opportunity to buy these at Distress Prices when the Sensex follows further DOW Declines and seeks even lower levels  from 8900 levels today         read more

Ernst & Young did Maytas Properties Valuation of Rs 6523 crs in just one Day !?

Just read a very interesting update on Maytas Properties in todays’ edition of Financial Express

Maytas Properties is facing the prospects of the Government taking it over the Board,just as they did for Satyam

The matter was being heard by the Company Law Board (CLB) and the company’s counsel suggested that the Government could appoint an observer or a Director on the Board…This was opposed by the Deputy Director,who represented the Government…He wants the Government to take over the Whole Board and thus the Company itself.

The Deputy Director made some interesting arguments on the Ernst & Young (E & Y) Valuation of Rs 6523 crs of Maytas Properties

  • There was a clear nexus between Father,Ramalinga Raju of Satyam, and Son,B Rama Raju,of Maytas Properties as they had relied on the E & Y Valuation to justify Satyam’s Proposal to takeover Maytas
  • This Valuation is Hollow as Maytas,as per government knowledge, has no land bank and has just a turnover of Rs 22 crs but the valuation was done at Rs 6523 crs
  • Government Alleges Fraud in the Valuation….E & Y has said in it’s Valuation report that they have valued all Maytas’s 31 projects in Chennai     ,Hyderabad,Bangalore and Nagpur and except for the Electronic City Project in Bangalore,land has been acquired
  • The fact is that Maytas Properties does not have any land.Some of it’s subsidiary companies have Development Rights,not lands….so the only asset the subsidiaries have are these rights
  • CLB Chairman,S Balasubramanian enquired whether E & Y did the Valuation in a which the Deputy Director replied ” No,the Valuation was done in a day only.”

So we have Two of the Big Four Accounting Firms facing bigtime flak in this sordid Satyam Saga…Price Waterhouse as Satyam auditors and Ernst & Young as Maytas Properties Valuers

What’s going to come out next !   

Just watch Sehwag Live now on Set Max or DD National …T-20 India v/s NZ…4 sixes..25 of 7 balls !

India has just begun their 45 day Cricket tour of New Zealand in blistering fashion with Sehwag on 25 of just 7 balls…watch him Live demolish the Kiwis in this T 20 match…he’s hit 4 sixes already…three of the first three balls he faced !…. Vettori elected to field after winning the toss

oooooooooooooo! Sehwag has just been bowled for 26 trying to hoist over midwicket…India is 32 fo2 and the fourth over has just started

Jai Ho ! A R Rehman wins Two Oscars as Slumdog Millionaire sweeps the Oscars with Eight Awards

Jai Ho !

Saw the 81st Oscar Presentation Awards Ceremonies beamed out Live on Star Movies this morning from the Kodak Theatre in LA,USA

Oscar Recognition of a Genius finally came with Two Oscars for our Music Maestro, A R Rehman for Original Score and Original Song ‘Jai Ho’ ( Lyrics by Gulzar) for Slumdog Millionaire (SM)

Rehman warmed the audience when he remarked in lighter vein,on winning the Oscar for Best Original Score for SM, that he was excited and terrified as he stood there…a feeling he last experienced at the time of his marriage !…SM is about Optimism and Hope.

Today is Monday here in India and is a Holiday on account of ‘Maha Shiv Ratri”…celebration of Lord Shiva…so it was truly apt that Rehman concluded one of his acceptance speech with a Tamil Saying that meant ‘God is Great’…he also told the audience that all his life he had a choice between ‘Love’ and ‘Hate’ and he chose ‘Love’ and that’s why he was at the Oscars !…Hmmm!…He also got a bit sentimental about his Mom’s presence commenting in true ‘filmy’ style ” Mere Paas Maa Hai !”  

Resul Pookutty  also won an Oscar for Sound Mixing in SM…he spoke on behalf of his two other co winners…he was initially overwhelmed on stage and took some time to get his breath back !…he dedicated the award to India,which has given the world the chant of ‘OM’…preceded and followed by the Power of Silence …Pookutty,who grew up in the Village of Vilakkupara,80 kms from Thiruvananthapuram,in the State of Kerala, will inspire thousands ,if not millions,of Indians who reside in Villages that they too can achieve big in Life  

SM swept the Oscar Scene by winning Eight Oscars Today,taking the coveted Oscars for Best Picture and Best Director ( Danny Boyle) too

Boyle was simply overjoyed and overboard too when he, in all humility and grace, acknowledged that all people in Mumbai simply “Dwarf this Guy !”…the Dwarf Guy was the Oscar Statuette he held in his hand !….and it was terrific to see over Twenty People,cast and crew of SM…including kids flown in from Mumbai specially for this occasion !,come on Stage to accept the Best Picture Oscar !  

Freida Pinto,the SM Star also was bestowed the honour of co-presenting one of the Awards at the Oscar Presentation Ceremony

Another heartwarming  feeling was that ‘Smile Pinky’ also won the Oscar in the Short Documentary Category.It’s a 39 minute film made by Megan Mylan on a six year old rural Girl Pinky,from Dabai Village in the State of Uttar Pradesh in India…becasue of a cleft lip deformity she is an outcast…Dr Subodh Kumar Singh,who too was in the audience,perfomed corrective surgery on Pinky for free and enables her to get a normal life…In her acceptance speech,Mylan was gratitude and humility personified in praising and acknowledging the work of Dr Subodh Kumar Singh and the many Indians who helped her create this Documentary  read more

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