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

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Looooooooong Full House Saturday Equity Mumbai Workshop Sept 14 2019

It was a looooooooong,should have held it over two days,¬† Full House Equity Workshop in Mumbai on Saturday,September 14,2019 with a whole spectrum of smart participants that made for really invigorating interaction ~they came from Mumbai,Gurgaon & Pune ~ from young upwardly mobile grads & post grads from top ranked Management Institutes in India,UK (London) & USA(Harvard) to ‘ well tuned in’ professionals from the IT ,Consultancy,Broking,Corporate & Banking Sectors to veteran high networth investors . We commenced at 9.30 am & concluded well beyond 7.30 pm ~ ūüôā should have arranged dinner too

Thank you Guys !

Here are a few candid clicks from the Workshop :

The Coverage was expansive & the Interaction from Participants very intelligent & which opened out many threads that we examined with anecdotal support . When analysing a company ,they asked what is “Non Negotiable” &¬† “How to have Foresight as on Hindsight we are always right”

Really a lot was covered ,some of which is below  :

  • Macros through :
  1. Examining the Equity Table’s four legs of Valuation,Liquidity,Momentum & Sentiment & the Impact of FPI Flows ~ when Valuation,which should be the strongest leg,sometimes takes a back seat as Liquidity or even a lack of it drives the momentum & sentiment
  2.  Not getting Seduced by any Bounce at  Friday closing Sensex 37385 & Nifty 11076 Levels as Caution is strongly indicated by domestic & overseas economy & geo-political headwinds
  3. Negative Interest Rates Era vs the Magic of Compounding in such meltdowns
  4. Sensex & Earnings & Market Cap & low GDP growth Dynamics on Levels & Valuations ~ Past,Present & Forward & why downside risk remains wide open while the upside appears capped for now ~ we referred to 1991/92 abnormally high Sensex PE pre Harshad Mehta Scam exposure & the High PE in 2000 with Ketan Parekh was in action & where the markets were clearing running ahead of fundamentals by huge margins~ we referred to the Sensex PE of just 6 in the late 1980s when VP Singh was the PM 1988~ we covered Mkt Cap/GDP Highs pre Lehman collapse in 2007/8 & the levels now
  5. Fx Reserves  & Exchange Rate Risk &  the Risk of increasing Sovereign Debt as planned by Government ~ How our Rupee has always had a South trajectory,except when it soared from Rs 49 to the US $ to Rs 39 to the US $ creating havoc especially in the Diamond Sector
  6. Why Inversely co-related Gold & US $ are moving up together instead
  7. Turm-Oil & Impact on Fiscal Deficit & Rupee  like last happened in 2007/8( On Saturday at the workshop we were not yet clued in to the Drone Attack on the Oil Refinery in Saudi Arabia that saw Oil Prices dangerously soar 20% in spot) ~ India is hugely dependent on Oil Imports
  8. Interest & Inflation rates
  9. Trump ~ Not sure if he’s a macro or micro factor !
  • Micros through many companies¬† & sector dynamics covering :
  1. Checklist on how to Smartly & Effectively & thus Quickly Read a voluminous Annual Report
  2. Our Five Steps for Evaluating a Company for Investment
  3. Impact on the Financial Statements in Scenarios like Buy Back,Rights Issues,Fictitious Sales,RBI issuing a divergence on Provisioning for NPAs,non linear jump in Sales Realisations,5 G Spectrum Fees,Permanent Diminution in Investments,Monetising Assets & Depreciation of the Rupee
  4. Quick Brief on Absolute & Relative Valuation & how to prepare a quick Valuation Grid from the Annual Report, Market Price Trends & Shareholding
  5. Why Liquidity more than Profitability is the ‘Circle of Life’¬† for a Company as viewed through the lens of the Cash Flow Statement dervived from the Balance Sheet & Profit & Loss Ac & that distinguishes operating,financing & investing flows
  6. Corporate Governance Issues on inadequate Disclosure or Non Disclosure, Incorrect & questionable Accounting Treatment & Lack of Transparency &  irresponsible (deliberate?)  Management utterances  that give a leg to Insider Trading & huge Profits through  Derivatives Play
  7. Courage & Conviction Promoter or Institutional recent Buying in Vodafone,Yes Bank,I B Real Estate & Tata Motors & seeing more wealth destruction since in these   
  8. Basis for Disclaimer of Opinion by the Auditor of Reliance Infrastructure & what holds out some hope
  9. Intangibles,Investments & Impairments
  10. Reliance Industries’s Enterprise Value,Revenue Segments Potential,Spin offs of the Jio Telecom Infra into two trusts, Aramco’s 20% stake being negotiated in the Refining,Petroleum Retailing & Petrochemicals Business that should lead to further demerger & reviving & scaling the Gas Exploration Operations
  11. How Defaults & Corporate Governance Issues decimated into or near oblivion Eros,Cox & Kings,ManPasand,Tree House Education,Satyam,Jet Airways,Kingfisher & Talwalkars & is there any hope of operational & share price recovery with Asset values holding out some hope in a few ~ How Clearly the Statutory Auditors & Credit Rating Agencies were negligent or intentionally turned a blind eye in many cases
  12. Huge Potential Outlay of the ‘Nal sey Jal’ Scheme of the Government & the new Jal Shakti Ministry focus that should benefit many companies if the implementation & execution is as noteworthy as the intent
  13. How IndAs 115 continues to affect Bombay Dyeing
  14. How Exchanges continue to accept outright untrue or tepid clarifications from Companies
  15. Reference to Investment Gurus & Living Legends Warren Buffett & Peter Lynch Approaches & Success
  16. ¬†Coverage of a few sectors like Defence, Hydrocarbons,Broking,Telecom,Real Estate,NBFCs,Banks & Automobiles & Disruption that’s in play in many
  17. Consolidation & Capitalisation of PSU Banks & the controversial Acquisition of Laxmi Vilas Bank by I B Housing Finance pending RBI approval
  18. Common Investor Mistakes

The next Equity Workshop is scheduled  pre-Diwali for Saturday ,October 19,2019 & will be announced soon on & social media

Touched by some warm & constructive feedback from participants :

  • thanks for a lovely interactive session…”
  • “enjoyed your session yday”
  • “it was great to meet again & reskill to be better prepared for opportunities which would arise”
  • “Thanks for being the Enabler,the last few days have been very encouraging”
  • “Cover the Scenarios Exercise more with Investor focus than just on Accounting Impact & take in a few Annual Reports before Lunch”¬†¬†

ūüėÜ & I swear I did not pay for these ones !

  • ” You are very good at what you do,comes naturally to you,with a vastness of the subject to cover you did justice to cover the best you could with your insights and experience of all the treasures of knowledge,you are an encyclopedia of the subject with case studies,which is the best way of teaching, sharing & learning according to me,the various industries that you know of,the processes & the products,the promoters & the pitfalls,the auditors & the audited,you can understand in the readings the stated & the unstated,intention & intended,you truly personify_the integration of intellect with instinct_”¬† ¬†
  • “Whoever missed this one, missed learning a radical way to look at balance sheets. Very practically in a few minutes you can strip away the padding and bullshit that promoters hide their sins behind. If the stock market’s motto or rather rider has always been caveat emptor or buyer beware, Gaurav’s lessons in Analysis would ensure that a “fool and his money are not soon parted” for when emotions like fear and greed coupled with ignorance seize us even the wisest are prone to behave like fools. Especially the wisest!”
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    Union Budget 2014 ~ Will Sensex continue to Humour as Jaitley does not!

    Have a look at our first impression posted ¬†after our FM ‘s Union Budget Address and during market hours

    Union Budget 2014 ~ Will Sensex continue to Humour as Jaitley does not!

    Think he missed a great opportunity to provide us with the ‘Naya Soch’ of the new NDA Government

    His Speech stated quite a few challenges and objectives like tackling Black Monies,raising Tax to GDP ratio,lowering Inflation and Fiscal Deficit % but stopped short of spelling out the specifics of solving these

    Having just 45 days after NDA was elected he has opted for the easier option of simply following the UPA budget process and numbers too that the UPA FM Mr Chidambaram laid out in his Interim Budget in February 2014….whether it be Disinvestment or Tax Receipts or Fiscal Deficit Control Targets…made right noises but was tokenism in a few areas like social expenditure…thankfully nothing really adverse or anti poor though direct tax incentives are not really cause for any celebration

    Sensex had quite a roller coaster ride today as to be expected….opening stable & pre budget speech at 25514 in the morning then sliding before noon over 300 points to 25117 from yesterday closing of 25445 during the budget speech before strongly racing away by over 700 points to 25920 …over 400 points previous day closing post budget speech only to reverse all the gains and close at 25373,down 72 points ¬†from previous day closing

    Will the Sensex continue to Humor us in the near term despite not an iota of Humor in the FM’s Speech !? …sense is that any correction will be a hiccup on the onward march towards 30000 on the back of increased FII Net Infows & Big Corporate Infra spending ¬†

    I see some clear big winners in the Infrastructure Space across the Board from Shipping to Power to SEZs to Real Estate to Highway Road Construction Companies and Pipeline Companies



    Lack ‘Lustre’ Listing by Mumbai based Jeweller Tribhovandas Bhimji Zaveri…IPO at Rs 120 but Listing barely manages to touch this Price and closes lower at Rs 111

    SEBI had tightened IPO Listing Rules in January 2012 to curb first days price volatility and manipulation by insiders….these are now implemented….IPO Issues below Rs 250 crs will be listed on only Delivery basis for the first ten days after listing and will have 5% tight circuit breakers on an equilibrium price discovered in a one hour pre auction window from 9 am to 10 am

    Clearly this has affected Volumes on listing

    Tribhovandas Bhimji Zaveri’s late April 2012 IPO to raise Rs 200 crs offered for 16.67 million shares at Rs 120…. just about got subscribed 1.15 times

    It got listed on BSE in ‘T’ Category and NSE with circuit breakers of ¬†a shade over Rs 109 on the lower side and ¬†just under Rs 121 on the upper side…The volumes on both exchanges were low at ¬†@ 1.2 Million shares each with the average traded Price at @ Rs 112….the Share closed at Rs 111 without hitting circuits either on up or downside…clearly controlled to do so ¬†…next 10 days will be only delivery based trades with 100% upfront margin

    Shrikant Zaveri and Family own 74.17% of the Equity of ¬†@ Rs 67 crs…FIIs hold 11.85%….Market Cap is ¬†just below Rs 750 crs

    My sense is that the share price may seek lower levels and slip below Rs 100 as IPO Pricing of Rs 120 was on the higher side at Earnings Multiples of 12 against 5 to 8 for other Jewellers….PAT has shown a non linear trend over the years…probably to facilitate an IPO at such a pricing of Rs 120….PAT of @ Rs 7.5 crs in FY 2007 and FY 2008 moved to just over Rs 10 crs in FY 2009 and then jumped to @ Rs 17 crs in FY 2010…FY 2011 saw it zoom to Rs 40 crs and for the nine months at December 31,2011 it was Rs 50 crs

    ….clearly a lack ‘lustre’ listing that should remain lack ‘lustre’

    Rajesh Exports at Rs 46…should you import into it ?…this is a reply reproduced as a Blog for better dissemination, to Gautam Agarwal’s response in yesterday’s Classic Diamond Blog

    Dear Gautam,

    Rajesh Exports is in a different league all together…It’s a Premier Trading House…..It’s sales are Rs 10000 crs ….It’s market cap is over Rs 1100 crs at Rs 46 share price…..It’s book value is Rs 33 as on 31/3/2008…Face Value is Rs 1….In FY 08 it earned Rs 200 crs on a topline of over Rs 8000 crs…that’s a small 2.5 % net margin…and in a tough FY 09,we’ve seen erosion in Profits…It will probably close FY 09 with less than Rs 100 crs Net profit,although topline would be Rs 10000 crs…That’s an EPS of Rs 4,half of FY 08 performance….so a 11 Multiple is fine currently(would include some premium for land assets too) ….Their Fixed Assets show Rs 65 crs…so the land you’re talking about at Rs 450 value crs in 2007 may not be in this Company fully…Even if it is ,the per share Value comes to Rs 18 only at this 2007 Valuation…The Land Valuation has probably dropped 40%….So Adjusted Book Value to current date would be closer to Rs 50 at best….With share Price at Rs 46,there is no real margin of safety here…..Also they show Debt of over Rs 1000 crs as on 31/3/2008 and networth is lower…Opening Cash on 1/4/2009 was Rs 5000 crs,but the current liabilities were also over Rs 4000 crs…Net Current Assets though were over Rs 1500 crs
    Promoter,Rajesh Mehta has recently pledged 1.5 cr shares for personal reasons…Why would he need Rs 50 crs,assuming a hairline to today’s price ?…..52 Week High/Low is Rs 86/Rs 18…market Volumes are quite lakhs everyday

    At Rs 20 it was clearly a less risky and tempting buy…At Rs 46,the risk goes up,even more in context of declining profits and margins and tight liquidity situation

    On the other hand ,Classic Diamond is small…Market Cap is just above Rs 60 crs..Looks tempting to buy it out…but Enterprise Value shoots up with the High Debt…and there is a question mark on the quality of Earnings,Inventories and Debtors

    But yes,Rajesh Exports has scale of Operations….and is a better bet than Classic Diamonds,if at all you want exposure in this sector.

    Classic Diamonds at Rs 16 with Book Value at Rs 56….Should you Buy ? Think Twice….this blog inspired by Response of Dr Sudeep

    Dr Sudeep has responded on my recent Sesa Goa blog and requested to throw some light on Classic Diamonds as it’s available for Rs 16 while the Book Value is Rs 56

    Well,Dr Sudeep…here’s my take on Classic Diamonds

    The Company was set up in 1986 and is run by a Father & Son Bhansali Duo and they own 64% of the Share Capital…The Company¬†plans a¬†preferential allotment of¬†750000 Share warrants to them…For such a small issue choosing the Warrants route rather than an upfront Shares Issue creates some doubt on¬†promoters liquidity situation¬†

    Most certainly Classic Diamonds has regular market makers…even yesterdays volumes were decent…77000+ on BSE and over a Lakh shares on NSE…The Face Value is Rs 2 and the 52 Week High Low is Rs 62 and Rs 7

    It’s been earning between Rs 20 crs and Rs 30 crores annualy for the past five years…FY 08 was good at Rs 31 crs,after an Interest charge of Rs 30 crs,giving an EPS of Rs 8 on an Equity of Rs 7.69 crs.It maintained the Dividend at 25%…that’s 50 Paise per share…that’s a poor 6.25 % payout from the EPS of Rs 8…so it’s not even a Dividend Yeild Scrip and makes you suspect on the quality of earnings when shareholders are not being rewarded well…It paid them just under Rs 2 crs,even though it earned a net of Rs 31 crs¬†

    The full¬†year FY 09 results should be out next week¬†on June 25,2009…but it had earned Rs 9 crs in the first half and then lost Rs 3 crs in the third quarter to net an aggregate of just Rs 6 crs…last quarter may not excite…In FY 08 the last quarter had shown under Rs 6 crs…Jewellery constituted 1/3 rd of the business in FY 08,upfrom 25% in FY 07…so profits are even throughout the year…..Assuming no further loss and a flat quarter,the EPS would probably be around Rs 2…So expect the Company to skip Dividend for FY 09 or reduce it from 25%

    March 31,2008 shows the¬†Company is servicing debt of just under Rs 350 crs….The Reserves are Rs 209 crs and that’s why you are getting excited because it computes to a Book Value of Rs 56…The Debt Equity is 1.6

    But The Business Model is not secure…The company earned Rs 31 crs in FY 08 on a topline of Rs 710 crs…that’s a net margin of below 5%…It’s Net Block is Rs 50 crs at 31/3/2008 and¬†Capital Employed of Rs 565 crs was blocked in nearly equal ratio in High Inventories and High Debtors….maybe typical of the Diamonds and Jewellery Sector but these areas simply devour working capital and put pressure on¬†interest cover and are prone to manipulation too read more

    Russia continues to devalue the Rouble,deplete Fx Reserves to support it…a consequence of falling Oil Prices

    An interesting news article in today’s Financial Express caught my eye….Russia’s Central bank devalued the Rouble for the second time in a week¬†¬†

    As 2008 began,Russia was flexing it’s economic muscle¬† and being touted as the next big super earner from surging Oil Prices to US $ 145/barrel…It had already began licking it’s lips in eager and exciting anticipation of surging¬† Revenues from Oil Exports

    Within Months the Fairy tale Speculative Bubble rise in Oil Prices burst and Oil is now under US $ 50

    This has taken a toll on Russia’s Currency…the Rouble…..For a straight ninth day it has depreciated against the Euro and it is now quoted at a four year low of 37.55 per euro

    Russia’s Central Bank has already devalued the Rouble twice this week…It has already depleted¬†it’s Fx Reserves by a huge US $ 161 billion or 27% to counter the 16% depreciation since August this year of the Rouble against the US Dollar as a consequence of Oil Prices crashing 69% from Highs

    I vividly recollect 1991/92 and the¬†open float of the Rouble and it’s consequent crash against the US Dollar by a factor of over 20¬†

    In fact a leading Indian Investment Magazine had carried a blatant Editorial in it’s July 1992 Issue that just said “BUY HEAVILY”…not because of their¬†¬† concluding that markets had bottomed out after correcting on the Harshad Mehta BR Scam exposed in April 1992 (They had not),but on the basis of the fact that they strongly opined that the Russian Rouble was to be floated and would crash significantly…¬†Therefore our Russian Defence Debt of around Rs 50000 crs would be restated to probably just Rs 50 Crs !

    This was poppycock !…the Bilateral Agreement between India and Russia clearly stated that the Indian Rupee to Rouble Exchange Rate would be fixed under all circumstances…If I remember correctly it was One Rouble to Rs 37…So there was no question of any restatement of Liabilities downwards

    Stock Markets,reeling under the Harshad Scam, were looking at straws to revive and took this Wrong Editorial as one and there was renewed buying…even some of my clients at the time went against our advice…..1992 closed much lower.

    Exchange Rates can play havoc…Currency Rate Volatility¬†exposes risks that need to be proactively managed by hedging.¬†¬†

    India too has been hit¬†in recent months by a 25% sudden depreciation in the Indian Rupee against the US Dollar…It was seen strong at US $/Rs 39 and expected to get stronger….but it¬†retraced fast to US $/Rs 49…Normally Exporters would have loved and welcome and celebrated this…but they had already forward booked at US $¬†42…Importers expecting more Rupee Strength at Rs US $/35 had not forward booked and have now got to pay heavily¬†more for a further weakened rupee…The Value added Export Diamond Sector has been¬† greatly affected…check out how in¬†my earlier Blog on this Industry read more

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