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

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Firstsource Solutions

A Dose of Rakesh Jhunjhunwala

Rakesh Jhunjhunwala on Future of Equity Market

Methinks every Indian Equity Investor needs a dose of Rakesh Jhunjhunwala (RJ) every few years! ~ any sooner it could be an Overdose !¬† ūüėÜ ~ just kidding !

I like the guy ! ~ right since I interacted with him when I invited him around 15 years ago at the turn of this century for interacting in an evening  Q & A session with my packed class of @ 90 participants in my Equity Portfolio Structuring and Stock Analysis Workshop at the BSE Training Institute as I thought he would add practical value & he did

“Boss ! I’m a¬†Sadak Chaap¬†! ” ¬†he had told us then as also how he had reconstructed his equity portfolio to concentrate only in a few stocks after the 2000 ICE debacle…so in a sense most of his Wealth has grown only in this Millennium in the past 15 years ~ and to his credit in Selections that were not really Blue Chip or Core

Yesterday had gone for an ¬†IMC interactive meet in Mumbai to check out if RJ has sobered & matured in his ‘manner of speak’ over the years ~ I rarely watch Stock Channels ~ don’t even have a TV in office~ ¬†so was not really conversant with how & what he delivered in his appearances though knew of his initiating big stakes in companies

I am delighted to blog he has not changed ! ~ shot straight from the hip & mouth again as he always does ” I’m a¬†satodia(translated to mean speculator)¬†¬†& investor & not an economist” ~ his investment portfolio has spread into the Alternatives of ¬†Bollywood Movie Production too with Kareena & Arjun starrer ‘Ki & Ka’ being his latest co production~ is into horse racing too and owns a few horses ~ passions perhaps where return on investments need not be measured in monies !?

Many perceive him as¬†Dehati¬†or Crude Dude for his rustic loud boorish way of speech~ but don’t let it fool you ! & he does not make any pretenses ~ he’s a CA by training & wears a fairly sharp mind

Money Talks & Crowd Laps it up all !~ many vigorously & ‘knowledgeably’ nodding in agreement

These RJ’s views & responses to questions posed should interest you :

On The Future of Equity Markets ~ Reiterates this is only the Trailer & we are going to witness a Mother of all Bull Runs.India is a thriving young Democracy with US $ 600 b in Savings every year.Equity Markets receive just US $ 50 b from this.This has to improve and it will ~ anyone ,any  doubt!?   

On Returns from Equity  ~ Ironically while his riches have been through multibagger 1000% + equity gains in concentrated high weightage stocks like Titan & Crisil he asserts that one should be happy with 18% CAGR gains and if it goes to 24% one should be really happy read more

Sesa Goa !….. Blog Readers who acted would have benefited immensely…468 % returns in seven months !…I bet you’ll waiting for which is my next ‘Sesa Goa’!

I’ve been backing Sesa Goa¬†…but when it fell dramatically to Rs 60-70 in March this year,I cried hoarse to bring in more funds to add to holdings

Then on June 17,2009,I reiterated to Stay with Sesa Goa¬†and add on declines …it was Rs 200 then

Then on August 12,2009 I reassured bloggers that the increased Mining Royalty will be absorbed well by Sesa Goa and they would make monies on increased volumes and the 10% correction to Rs 228 that day should not worry investors

Sesa Goa surged 18%¬†yesterday¬†to close strong at Rs 341…This¬†is a¬† fantastic return of 468 %¬†from the March low of Rs 60….all in just seven months !

And for all those who bought it mid last year cum 1:1 bonus and 10:1 split have made a 100 % profit on the adjusted price of Rs 160-Rs 170

I bet all of you are itching to know when I’ll hint¬†my next ‘Sesa Goa’ type of recommendation!…In Feb,I¬†hinted Firstsource Solutions¬†at Rs 9…..It’s up over 275 % at Rs 34 now ! Clients ofcourse have the¬†privileged and prior¬†access to my stock ideas and me

Fundamentals and Valuations rarely let you down over the longer term

Why don’t you’ll seriously consider joining¬†my advisory…make no promises….let the performance speak for itself….but don’t expect three digit returns in three days !……the link is at the top of pages on the right

Cheers !

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….

Firstsource Solutions declares Q3 Results…Mounting FX Translation Loss evaporating Reserves

Very Cleverly,as is also not mandatory,Firstsource Solutions has avoided stating the Reserves position for the Nine Months ended December 31,2008 in both their Consolidated and the Standalone Results

Firstsource Solutions has a current Equity of Rs 428 crs and had Consolidated Reserves of Rs 313 crs and Standalone Reserves of Rs 201 crs as at March 31,2008.

In the Current Year for the Nine Months as at December 31,2008,the Company has accounted for Rs 158 crs as Fx Translation Loss through Reserves (early adoption of AS 30) and has shown a Consolidated Loss of Rs 10 crs  and a Standalone Loss of Rs 32 crs

When we adjust Reserves to reflect Current Year Results,we get significantly reduced Reserves at December 31,2008 of Rs 144 crs on a consolidated basis and just Rs 11 crs on a standalone basis !

If Translation Loss mounts further in Q 4,Standalone Reserves will simply turn negative dropping Book Value below Rs 10 

Company has 6.75% FCCB Bonds to the Value of US $ 275 Million and Translation loss on this arise as the Dollar has been appreciating aganist the Rupee

Normally Exchange Risk for a pure play BPO outfit with Foreign Currency Denominated Debt is taken care of or hedged with the ¬†Fx Invoicing and therefore Fx Inflows…However these FCCB Bonds mature only in 2012 and moreover Company’s operating margins are below 10%

On hindsight it does appear very foolish to have taken such a currency risk…probably the Board of Directors,that boasts of top Financial Names,had only an eye on the FCCB¬†optional conversion Price of Rs 92.60 !¬†and the strong possibility at the time that the Dollar would depreciate !

It would appear that the IPO Investors paid a very High¬†Premium in Rupees of Rs 54 (IPO of Rs 64 in Jan/Feb 2007) to create the Reserves only to see them evaporate as the Company took on a high Currency Risk in Dollar Debt…also it was clearly with the shortsighted and vested objective of making a quick buck,albeit notional,¬†that the promoters ,ICICI Group and the FIIs,were allotted Shares at par or at very low premiums…They contributed inside Rs 100 crs for an aggregate 85% stake,while IPO Investors picked up 60 million fresh shares at Rs 64 and contributed the bulk of Rs 384 crs for¬†less than 15% stake

The Company is apparently caught between the Devil and the Deep Sea here…Should it switch from Dollar Debt to Rupee Debt to kill any further potential and killing FX Translation Loss if Dollar appreciates towards Rs 60 ?…Is it in any position to do this in the first place ?….because FCCB Holders will await 2012 Maturity date and will not exercise conversion at Rs 92.60…However if they feel there is a good chance of default they may be willing to sell of these Bonds cheaper than Maturity Value and at a discount…Firstsource Solutions may not have adequate Liquidity to redeem these Bonds at a discount now.Raising further Equity looks difficult…The Equity base is already too high at Rs 428 crs and the Share price is very Low at @ Rs 14 now,up from under Rs 10 last week !¬† read more

Firstsource Solutions from the ICICI Stable sinks below Face Value Rs 10….Why !?

Thx Anup for your response in the earlier Larsen Blog where you also requested for my view¬†on Firstsource Solutions as it’s share price sunk to Rs 9.75,below face Value of Rs 10 for the first time ever¬†

I hope this blog gives you some clarity on this Company

It was clearly an Opportunistic IPO at a Heavy Premium in Bullish Times….Despite a Networth of just Rs 100 crs,excluding Goodwill,Firstsource Solutions managed to raise Rs 384 crs¬†,offering shares¬†at a Price that was nearly 30 times the Earnings

Even the Objects to the Issue were General…Rs 180 crs for Acqusitions that were yet to be identified,Rs 45 crs to repay a Loan from ICICI Bank.Rs 46 crs for creating New facilities,Rs 89 crs for General Corporate Purposes and Rs 24 crs for Issue Expenses¬†

Two years ago¬†on January 29,2007, ICICI Group promoted,Firstsource Solutions, came out with it’s IPO at Rs 64 ( Face Value of Rs 10 + Premium of Rs 54).IPO Size was Rs 443.50 crs with a fresh issue of 60 million shares and an offer for sale of 9.3 million shares by Promoter,¬†ICICI Group¬†

The issue received an overwhelming response and was oversubscribed 40 times….with the QIB Portion @ 71 times,Retail portion @ 11 times and Non Institutional category @ 40 times

It was listed at Rs 90 on February 22,2007 and reached a high of Rs 93 on May 15,2007…Since then it has drifted lower and lower….As of December 31,2008,It’s Shareholder Pedigree boasts the likes of ICICI Bank Promoter group ( 26.74% stake) and¬†Aranda of the Temasek Group,Metavante,WestBridge,Galleon Group,Seacrest ( collectively holding 55.33%)

What has hit this pure play BPO Outfit ?……It’s simply the FCCB Exposure of US $ 275 Million and the effect of the Rupee Depreciation on it¬†that is causing the sickness

The company has adopted AS 30 in FY 09 from July 1,2008¬†much before it becomes mandatory in FY 2012.It has designated the FCCB as a Hedging Instrument for it’s Net Investments in Non-Integral Foreign Operations.This requires it to debit any¬†translation loss on¬†the FCCB in event of the Rupee Depreciating to¬†¬†a specially denominated Transalation Reserve and not through the Profit and Loss A/c…However the difference between the Fair Value of the Debt and the carried Value should be written off in the P & L A/c.Also any premium or discount on Forward contracts on hedged positions should be routed through the P & L A/c¬†.Premiums to be paid on redemption have to be amortised over the life of the bond against¬†the Share Premium Reserve¬† read more

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