A Lion’s eye on the Bulls and Bears

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

Gaurav's Blog


Financial & Stock Exchanges

I have an Issue…actually several…..with the SKS Microfinance Issue !….Intentions may be Noble but Actions are Profit Motivated and not singularly Selfless !

I have two Primary Issues…and several related ones….. with this SKS Microfinance Primary Issue

Microfinance Industry emerged to alleviate Poverty by providing access of basic financial services like Loans and microinsurance to the poor…..I am frowning at this attempt to commercialise this Industry through an IPO at such a High Premium I am not going to contribute to the Profits of Pre IPO Shareholders…especially Sequoia Capital…. who are offering for Sale their Shares in this SKS Microfinance IPO that has opened today !

16.79 Million Shares are on offer in the price band Rs 850 to Rs 985 !….of which only 7.45 million shares are Fresh Issue with IPO proceeds going to the Company while 9.34 Million Shares are Offer for Sale by Existing Investors…In fact Sequoia Capital,termed as a Promoter, is offloading 3.99 million shares in this IPO of their 9.1 million shares and will bring down their holding from 14.1 % Pre IPO Equity of Rs 64.52 crs to 7.1 % of Post IPO Equity of Rs 71.97 crs….Their average acquisition cost is Rs 61.18 only and they have been allotted shares in 2007 and 2008 in three tranches at Rs 49.77,Rs 70.67 and Rs 103.91….Just Imagine….Sequoia paid just under Rs 56 crs for their 9.1 million shares….If Rs 985 Top end Price is fixed for this IPO,the 3.99 million shares they are offering on sale will fetch them Rs 393 crs !…so they make a whopping near Rs 337 crs over their aggregate cost  for shares held for just  two to three years and yet have 5.1 million shares remaining with them !…reminds me of a similar ploy by Citigroup and Chrys Capital in the Suzlon issue a few years ago ! (Search my blog for this)                                                                                                                   There is something not right in Promoters enriching themselves handsomely by part cashing out in the IPO or pre IPO….In fact the Chief Promoter,Vikram Akula sold 9.45 lakh of his Shares just this year in February 2010 to Tree Line Asia Master Fund (Singapore) for US $ 12.92 million (works out to @ Rs 637)…In fact several top Employees also sold part of their Esop shareholdings to Tree Line for Rs 636.72….Encashing Profits of Crores like this just before the IPO brings into question Promoter and Top Management Committment to the Company….Maybe Legal…but….Feels like they are itching to exit at Rs 985 as they may not get this price again!….and inside a year Shareholders have been allotted Shares even at Rs 300….from here to the Gains are over 200%….Even after the IPO,the Pre IPO Shareholders will hold nearly 77% of the Post IPO Equity….This would entitle them to 77% of the Networth….which would have been substantially built by the Public who are paying Rs 985 per share in the IPO !…Nah !…now why would the Public do this ! ?…they are merely looking at one side of the Equation that they will benefit from the Share Price above Rs 985….they fail to see that their Rs 985 is creating Huge Assets of which they will merely own 23%…..while 77% will be owned by Pre IPO Shareholders who have contributed in the past one to three years just an average acquisition price of  Rs 24.54 to Rs 137.53 (Promoters) and upto just Rs 300 for Non Promoters     

While contending with my emotions on the above two issues, the High,near obscene IPO Price Band of Rs 850 to Rs 985 makes it easier for me to say ‘No’ to this Issue read more

IFCI at Rs 58…..Interest Reviving yet again…Rs 100 + inside a year ?

Several Times I had strongly recommended IFCI as a multibagger….. starting at Rs 16 in December 2006….It raced to Rs 130 levels as the Government called for bids to sell a Strategic Stake in it….A Joint Bid by Sterlite and Morgan fell through as the Government was not transparent on Conversion of Institutional Debt to Equity ……this would significantly have affected the Shareholding Break Up and diluted the Winning Bidders Holding…there was also Government reluctance to transfer Management Control

The Finance  Minister at the time,Mr Chidambaram had bravely stated that he will certainly revist IFCI strategic Stake sale at a later time and get even a higher Bid than the Rs 80-Rs 90 that was achieved at the time

IFCI quickly sunk and reached levels of even Rs 20 in the October 2008 and March 2009 Lows…this retracement wiped off Notional Gains build up in the Scrip….It has since moved up past Rs 45 levels and has surged in recent times….and is Rs 58 today….Can easily double from here too in the next six months on positive developments

The Interest in IFCI is now being revived….the key reason is that they are planning to apply to become a Bank once the new guidelines are announced…expected this month….The last to get permission were Yes Bank and Kotak Mahindra in 2002

In fact IFCI had pursued this route to convert to a bank way back in the 1990s along with IDBI,ICICI ,HDFC and UTI (now Axis Bank)….except for IFCI,all others had been given the green signal

IFCI was plagued for years with a high level of Non Performing Assets that had threatened to erode the Networth….In 2005/6 the NPA levels disclosed were Rs 3950 crs…I had even given it the Notorious Acronym of ‘I F….. the Country of India’ !

But in 2006/7 the revival and turnaround became clear…Real Estate,Investments and Recoveries spearheaded this…NPAs were brought down to a level of Rs 1366 crs….that’s why and when I recommended IFCI at Rs 16 as a SS 1 Scriptech Stock Select…It was beginning to turn around fast

Look at the latest Financials…..As at March 31,2010,the Equity (FV Rs 10) stands at Rs 738 crs ….The Networth is Rs 3152 crs giving a Book Value of near Rs 43…Standalone PAT is Rs 671 crs giving an EPS of Rs 9…a Dividend of 10% has been declared…so at Rs 58,it’s at a 6 + Earnings Multiple and a 1.3 Book Multiple…not expensive by any stretch read more

Bombay Stock Exchange and New York Stock Exchange…Both Heritages linked to Trees !…Fascinating

Fascinating…..The Heritage of New York Stock Exchange (NYSE) and Bombay Stock Exchange (BSE) are linked to Trees !

NYSE is 218 years old and BSE is 135 years old 

For NYSE it was the Sycamore or Buttonwood Tree

On May 17,1792,Twenty Four Stock Brokers of New Your City signed under the Sycamore or Buttonwood Tree at 68 Wall Street, what is called the Buttonwood Agreement that launched NYSE with just five listings !…it was short and sweet with just two sentences….that the Brokers merely trade only with each other and do not charge more than 0.25% Commission….Today NYSE boasts of over 1300 Trading Seats and over 2700 Listings

For BSE it was the Banyan Tree

In the 1850s the Stock Brokers traded under the Banyan Tree in front of the Town Hall ( now known as Horniman Circle)…then as their Numbers increased they spread a few lanes away to Banyan Trees at Meadows Street ( now known as Mahatma Gandhi Road)…finally in 1874 they moved to a lane they appropriately called Dalal Street…known even as this today….in 1875 these Brokers launched ‘The Native Share and Stock Brokers Association’….Today BSE ranks World No 1 in terms of Number of Listings…over 4900 of them   

What a Tradition !… What a Heritage !…From a Tiny Acorn does a Mighty Oak Grow !…..Fascinating when you contemplate the Electronic Era Today…of State of the Art Hi Tech Offices in Concrete Skyscrapers and Impersonal Paperless Trading in Billions and Trillions !  

Bit Early on a Weekend,but try and catch me on TV on DD National at 8.30 am tomorrow morning in ‘Money Plant’ for my Views on Forex Markets,Currencies and related Investment Opportunities…

I know it’s relatively early morning on a weekend but If you can,catch me on the ‘Money Plant’ Show tomorrow, Saturday,May 15,2010 at 8.30 am in the morning on DD National (It’s Channel 14 if you’re a Hathaway Subscriber in Mumbai) It’s a half an hour show on Forex Markets & Investment Opportunities in it…you’ll sense my views on a host of Forex issues,including whether the Yuan can replace the Dollar as Standard World Currency,the fate of the Euro,US Dollar and our Indian Rupee and the connection between Interest,Inflation and Exchange Rates Cheers !  
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