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A Lion’s eye on the Bulls and Bears

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

Gaurav's Blog


May 2009


The Market Cap today on BSE was Rs 4865045 crs.

A declining Dollar with US $ =Rs 47.20 gives a Market Cap of US $ 1031 Billion

That’s over One Trillion US Dollars yet again !

Reliance Industries continues to reign supreme and is Numero Uno in Market Cap with Rs 358433 crs or US $ 76 Biliion…that’s 7.4% of Total Market Cap !

Under Three Months ago we were at Half a Trillion or 500 Billion Dollar levels in March 2009

This Market Cap run of 100% has been one of the fastest in the past 17 years 

And the Q 4 GDP Growth rates figures were better than expected at 5.8%…that gives an indication that the GDP Growth rate for FY 09 will be 6.7%,better than feared

That gives the Valuation parameter of Market Cap/GDP of over 1…Now that’s good ! but does sound a little caution for the market momentum ahead in the short term!

Another interesting observation ….Normally the Sensex Market Cap was 49% of Total Market Cap…It’s been falling past few months and is now at 45.7%…this shows action is heating up in Non Sensex as Mid cap scrips

Yet !,Way to go India ! 

Reliance Power at Rs 179 ! Yeh kahaa aa gaye hum !

ADAG’s Reliance Power early last year short circuited IPO allottees at Rs 427.50 and then tried to make amends by a 3 : 5 Bonus from share premium reserves and not operating reserves to bring down holding cost to Rs 267

It’s surged to Rs 179 today…..What !? Why !? Hello !?

A leading Investment Banking House has come out with a DCF target of Rs 215 !…What the ….!?

Clearly Assets and Earnings Valuations would have thrown up poor values ….With no earnings in the next few years  and no dividends in the forseeable future and with long gestation periods and a Book Value of Rs 57 ( largely because we gave the premium of Rs 417.50/share in the IPO to the Company !),the only way to try and justify a price of Rs 200 + would be the DCF method !

Now how pretty smart is this DCF !….WACC is taken at 13 %, Growth Rate for Terminal Value is assumed at 5% and Present Values of Free Cash Flows have been taken from 2009 to 2024…They measure up to just Rs 4200 crs while the Present Value of the Terminal Value from Year 2025 is a whopping Rs 47300 crs……Till 2014 the Flows are negative !

I’m not saying Reliance Power will not Power ahead after this gestation period…I’m only considering the assumptions,risks,visibility and uncertainty of earnings,financial and feed supply closures and implementation hurdles that this company yet faces

Just 600 MW is the Rosa Plant coming up next year….The Company has chartered an ambitious 28000 MW till 2017…majority is coal based….However the Dadri 7480 MW plant depends on Gas from the KG Basin ( under dispute with Reliance Industries)

Just be careful….In this Post Election Results Bullish Intensity,Power Sector Reforms Mania is sweeping again and Reliance Power may yet again attempt to raise Equity Capital at High Prices as it yet needs to achieve Financial Closures to a few Mega Power Plants

So unless you have a Five Year Generous Outlook,I would advice you to be cautious when considering Reliance Power….It yet needs to make amends for the IPO Pricing !….and if you were an IPO allottee and yet have it in your portfolio,you could consider an exit in this rally

You are already affording a High Book Multiple of 3 and on an Earnings Basis a Share Price of Rs 200 would only be justified on a Ten Multiple on an EPS of Rs 20…that’s a Net profit of Rs 5000 crs !…and that’s unlikely till atleast 2014/5…You gonna wait that long but give it the price now ! ?….The Networth is below Rs 14000 crs now ,it’s Market Cap; is near Rs 43000 crs and the  generous assumptions in the DCF computations allows you to show the Present Value under DCF at over Rs 51000 crs ! read more

Super Sunday in Trichy…Treble delight in the Triple Sundae !

Sounds like I simply devoured a Great Triple Sundae Dessert out there in Trichy !

Actually it was Trebly memorable Sunday in the Temple City of Trichy in Tamil Nadu due to

  • An Emotionally Uplifting ‘Darshan’ of Lord Vishnu and ‘Goddess Lakshmi’ at Trichy’s Main Temple at Srirangam
  • A very well received Two Day Workshop organised by one of India’s leading Broking Groups…Participants had come from Thanjavur,Madurai,Salem and Coimbatore and other places in Tamil Nadu 
  • A Sensational IPL Final and Closing Ceremonies 

Actually I just returned to Mumbai from Trichy yesterday after this memorable weekend…Had gone to deliver the above weekend Workshop

It began with our Jet Flight from Mumbai to Chennai on Friday afternoon….On landing in Chennai we were told of the cancellation of the connecting Paramount Airways Chennai-Trichy flight on Friday Night..wasn’t too keen to drive six to seven hours from Chennai to Trichy at night,so transfered to a Chennai – Madurai flight…they served a Tamil Nadu brand of Water called ‘Diet’ ! …Diet Water ! ?….Smaller 72 seater Embareur Aircraft…pretty comfortable and stable too in the air…full dinner service on a 55 minutes flight with proper linen and cutlery and crockery……+ Scratch a Card and Win one of several Gifts !…pay Rs 599 and you can collect these at Special AVA Counters at airports…collected a FOCE Watch at Madurai Airport…..They’re smart…rarely can you win the more expensive gifts like a Blackberry !…and even if you do you have to write to Haryana to get it…What is stocked at the counters are just Watches and Pearl and Leather sets !…..pretty gimmicky really…..stayed overnight at North Gate,Madurai…..actually worked on the Presentations till 3.45 am in the night to update Friday Closing Market Figures….left for Trichy by road at 5.30 am in the morning…reached at 8.15 am and began the weekend workshop at 10 am on Saturday

But it was Sunday that was really great

It began with a Special Darshan at 8.30 am at Trichy’s most famous Temple at Srirangam…The residing Deity is Lord Vishnu lying horizontal on a serpent….It was ‘Amavas’ and the hordes of worshippers had formed a long  queue…surely it would take them hours to seek God’s Blessings !…Fortunately the ‘Darshan’ was arranged after we were guided to enter through one of the Nine Gates of the Temple…It was truly an overwhelming experience…However, though ‘Lord Vishnu’ blessed us,we were unable to pray to ‘Goddess Lakshmi’ as temple timings had to be followed…I was disappointed and evinced a desire to return that evening for her ‘darshan’

I began the second day of the Workshop at 10 am .It was very touching that participants were quite effusive in their appreciation….I hope their feedback forms to the Client reflect all of this !…They got out of their shell from Saturday afternoon and began interacting and responding well with me on Sunday…Covered Satyam’s Valuation on a Participant’s Request and covered Reliance Valuation to convey why the markets were so excited that they had raced this scrip from Rs 1100 in early March to twice that now !…Covered Concepts like Beta and It’s Application in Valuation,Hedging and Momentum Trading read more

Aftek begins moving from sub Rs 10 to now Rs 11.50…Expect Fireworks

Simply cannot figure out why Aftek is ‘kept’ this low at Rs 6 to Rs 10 range for a long time…Key word here  is ‘kept’.Today it broke to Rs 11.50 with fairly strong volumes of over Three lakh and Six Lakh Shares on BSE and NSE respectively.

With over Rs 30 cash/share , as over Rs 300 crs in cash,most of it lying in a Portugese bank as a Dollar Deposit or in a Current A/c and with little debt and a high Book Value of Rs 90, what is holding Aftek back at Rs 10 levels ?

One would suspect that the Company has no control over the Cash ,although the auditors,had accepted the management’s assurance that there was no remittance restriction on these funds….The Funds do exist,unlike the Satyam Saga….At the last AGM,the MD,Ranjit Dhuru was asked by an irate shareholder about this situation…He was unable to give any convincing answer… there is clearly a Corporate Governance and lack of Tranperancy issue here

I wonder how RBI allows Aftek to keep such large Monies for years in Portugal,when the Company has no operations there !

Aftek earns no significant Income on these Funds,but has shown a Rs 89 crores FX gain this year as US Dollar has appreciated 25% on the Rupee in 2008/9…It has used this to provide for Rs 130 crs for it’s Investment and loan to it’s German Venture which has been wound up

It’s a controlled scrip,although the shareholding pattern does not reveal it and Promoters  hold under 20 % and have not increased their shareholding….giving credence to the suspiscion that they do not control the Company’s Funds lying in Portugal…Who does then ? 

Expect fireworks in Aftek…It’s 52 Week High/ Low is Rs 56/Rs 6…so we are yet at the Lower End…..Surely expect fireworks 

Firstsource Solutions…up 23% today from Rs 17 to Rs 21 + on Exceptional Volumes

NSE saw Volumes of 32.7 million shares and BSE of 19 million shares as Firstsource Solutions climbed smartly 23 % to Rs 21 + today even as Indices corrected 1.7 %

I’ve covered in detail FSL in earlier blogs on January 30,2009…  saying it presented a buying opportunity at Rs 9/10 and if Dollar fell to Rs 42 the price would rise to Rs 25+.The Dollar is down only to Rs 47.50 and FSL is up strongly

On February 5,2009 I commented on their Q 3 results and suggested some financial restructuring to reduce FCCB $ Exposure

The rising price and Exceptional Volumes tell us something strong is brewing….

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