TAP GAP Equity Poser 7/11……Which Listed Company will be a huge Wealth Destroyer for Shareholders in the next Five Years ?

TAP GAP….. Equity Poser 7/11……Respond by July 15,2011

Winning Response wins the gauravblog hamper that includes a gauravblog Collared T Shirt above….Ten Hampers have already been won in earlier Equity Posers.You can check out the Winners Scroll and their comments after they were delivered the hamper…Winners of TAP GAP 6/11 will begin receiving their hampers next week

Thanks Raoji for suggesting this one

Equity Poser

Which  Listed Company will be a huge Wealth Destroyer for Shareholders in the next Five Years ,in that it should not be in any Equity Portfolio and if available in the Derivatives Segment,Aggressive Players should short it and keep rolling over their positions ?

 

A Guiding Note from me……

We’ve seen decimation in India and Overseas of many companies in the past …even Blue Chips like Kodak are now in the Blues having declined from US $ 80+ levels in the late 1990s to just US $ 3.50 today as ‘ New Tech wrecked Old Tech’ 

In India we’ve seen Corporate Governance Issues damage shareholder wealth permanently….Silverline…Cranes….Austral Coke….list of lemons goes on

We’ve seen Vulgar Vertical Valuations laid flat horizontally….real estate sector scrips are good illustrations….IPOs at Obscene Premiums in the Primary Market have faced a ‘waterloo’ in the Secondary Market….Big Example is Biyani’s Future Capital Holdings…issued in January 2008 at Rs 765,three and a half years later it’s struggling at Rs 130 levels today…Suzlon is another glaring example….enjoying an inflated bubble Market Cap of over Rs 50000 crs at one time post listing and with Promoters Tanti’s being the toast of India,the Market Cap dropped towards Rs 5000 crs and is now at Rs 8600 crs   

So do give your caution and critical reason for it of any company or companies that you would simply stay away from…or if aggressive even short aggressively to mint monies…..

Greenlight Capital began shorting Lehman Brothers in July 2007…Lehman went bankrupt in September 2008 ….This Hedge Fund, walked away with a record US $ 3.1 Billion in gains because it’s Creator and Founder,David Einhorn kept on shorting Lehman from US $ 60 …..he repeatedly challenged Lehman CEO Richard Fuld to disclose the real exposure to mortgage related bonds….In June 2008 Einhorn sarcastically commented on CNBC that Fuld had raised US $ 6 billion…money he had earlier stated Lehman did not need…..to fund Losses that he had stated he did not have !

Your reasons for your choice of wealth destroyer could therefore be vulgar valuations,specific corporate governance issues ,demand erosion,outdated technology,adverse government policy and regulation changes,excessive financial leveraging and huge debt overhang,huge exchange risk and exposure,cannot cope with competition on quality or pricing or domain expertise or rampant financial chicanery that overstates assets and profits and camouflages liabilities and losses,wrong Investment and Financing Decisions,Business Model Viability in question…… 

All the best….and please do respond more vigorously than you’ll did for TAP GAP 6/11

Cheers !    

21 thoughts on “TAP GAP Equity Poser 7/11……Which Listed Company will be a huge Wealth Destroyer for Shareholders in the next Five Years ?

  1. If we look at the five year horizon, then most of the Companies from the ADAG stable will be huge wealth destroyers. Looking at the way top management is functioning with serious issues of Corporate governance in basically all the ADAG companies, It will take a major restructuring and upheavel of the top management functionaries in each of the Companies for a positive change to take place.

  2. Since we are just out off a big global recession, we are yet to create a new bubble 🙂 Well, but many real estate players are with huge debt burden. Another sector that is hyped is power generation, which will be price controlled by Government. Either Unitech, or Reliance Power though beaten down could still be a opportunity loser for shareholders. Though it’s a little tough on them, Maruti Udyog will be another, due to competition etc.

  3. 1)NOKIA
    2)Microsoft
    3) MDAG
    4)ADAG( u can only lose so much after losing 90% hence only 3rd!!)
    5)Anything starting with ESSAR
    6) Lots of commodity
    plays,…..
    this list is much easier!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  4. I hear there are 2 HOT START UP’s from India staring in the next 2 months which are gonna create amazing value for all stake holders!!
    Have you heard of them 😉 ?

  5. Hi Gaurav,

    This is not the right place for the question. I have asked this in multibaggers blog.Repeating again.Pls provide your inputs.

    1) What according to you would be the high probable multibaggers which are not in the list here.

    2) What are your thoughts on Numeric Power and SesaGoa both have EPS around 40 and P/E of around 7.

    Thanks
    Nitin

  6. Lots of things can destroy value for investors.

    The Kodak example illustrates the impact of technology

    I feel all the multiplex stocks-PVR,fame etc will be impacted badly.

    Technology now ensures that movies can be screened in multiple formats-mobile,tv, computer etc

    Why would one go to a multiplex pay exorbitant prices for food n tickets while one can do the same sitting at home?

    The only exceptions are 3D movies.

    The costing of these places -heavy real estate costs, electricity, maintenance,taxes etc makes this a v v unviable business to be in.

    Another thing that adds to the unviability is the season in India-IPL,cricket matches, exams,terrorism blasts -they are vunerable to each and every variable under the sun

    Lets face it..travelling to a big hall to see a movie is so 20th century !!

  7. Shareholder destruction will occur where promoters are not investor friendly and use the stock markets/bond markets as a way of milking the public.

    Example of the past:ADA in RPower,Biyani for Future Capital etc

    Example for the future:
    1.Future Ventures…this stock will lose 80% of its value in the future looking at its holdings

    2.Micro Technologies…FCCB redemption coming up but the money is gone in marketing.Where will they find the funds to repay?

  8. Always good to read your blog.
    Well after creator u have come with destroyer.

    My opinion: whole Reliance group. In Mukesh’s tent, RIL will have tough competition from Vedant. Till now Ambani had great repo with government & he had taken a lot of benefit for himself. Now Govt wants to kill RIL monopoly, because some years back both brother took worms out of bins by going in media & accusing involvement of Ministers.
    I strongly believe , Government is secretly betting more on Vedant as a future big pvt player in oil. This will simply create rival of Ambani vs Agagrwal. which will lead to big corrosion of value in RIL. Nothing to say about Anil’s tent, as most of us knows about his future.

    I will be more pleases to know your point of view & others also,

    Have a great week ahead,
    Pranav

  9. Another destroyer will be KingFisher Airlines.

    Becauze, although airlines known to make losses, Indian aviation sector yet to grow.

    Going forword we will see huge oil prices.

    So more revenue Kingfisher airline generates(due to high growth in aviation industry), more losses they make .

  10. Hi Gaurav,
    RIL will be the biggest value destroyer as it is already in trouble for inside trading and is yet to be fined. There are a lot of other Corporate Governance which will land it in trouble.

  11. Spice Mobility : They call themselves the “Apple of Asia” (in concall) but they have a very poor brand. They are competing in a very crowded market where margins will continue to crash as seen in the past 2 quarters. The valuation is absurd (2500Cr MCap, 30PE) for a company with no moat or consistent earning potential. In spite of volume growth, their EBIDTA has dropped more than 50%. Most important thing, I hate is still they keep on saying that “We are going to lead the 3G revolution”. They lack scale in both VAS & Mobile business. Even new players have cornered significant market share which shows the poor management quality. I also get feelers that there are operators behind the stock who may exit soon.

  12. Karuturi Global: The company keeps on diluting equity and they also have a significant debt burden. Their enterprise valuation of nearly 1500 crore will get destroyed and 1000 crore M-Cap will go in a wink. It has very strong corporate governance problems. Company recently said that they will not be raising additional capital in the next 2 years and very recently they are again on the look out for funds.

    On a broader note, Power sector is undergoing lot of disruptive technology changes and if any of the technology really becomes viable. then look at the value destruction for the huge investments happening in coal based power plants where they get returns only over 25-30 year period. For eg: there are views that cost of generating power through solar energy is really becoming viable because photo voltaic cell prices are coming down exponentially. It is expected that PV powered energy can get cheaper than coal in 2017. Solar power can be very localized and hence no need for huge infrastructure in transmission & distribution. All these investments (Power plants, T&D) will suddenly go unused and this will create huge value destruction in this sector and at the same time exponential value creation for new technology. There are also multiple technologies which can be scaled up like bio-fuels and geo energy where lot of research is going on. This could be one big disruptive trend.

  13. Karuturi Global: The company keeps on diluting equity and they also have a significant debt burden. Their enterprise valuation of nearly 1500 crore will get destroyed and 1000 crore M-Cap will go in a wink. It has very strong corporate governance problems. Company recently said that they will not be raising additional capital in the next 2 years and very recently they are again on the look out for funds.

    On a broader note, Power sector is undergoing lot of disruptive technology changes and if any of the technology really becomes viable. then look at the value destruction for the huge investments happening in coal based power plants where they get returns only over 25-30 year period. For eg: there are views that cost of generating power through solar energy is really becoming viable because photo voltaic cell prices are coming down exponentially. It is expected that PV powered energy can get cheaper than coal in 2017. Solar power can be very localized and hence no need for huge infrastructure in transmission & distribution. All these investments (Power plants, T&D) will suddenly go unused and this will create huge value destruction in this sector and at the same time exponential value creation for new technology. There are also multiple technologies which can be scaled up like bio-fuels and geo energy where lot of research is going on. This could be one big disruptive trend going forward..

  14. Sir,my choice for great wealth destroyer is KGN industries. I know few do know abt the company. But those who have invested must hav a look at my analysis. The Profit as per P&L a/c and that of Cash flow statement dotnot match. It seem similar to that of satyam.
    thnks!

  15. Dear Gaurav,

    I feel ” Sun Network ” may be a huge destroyer for the forth coming years,taking into consideration of the following factors.

    1.Maran’s 2G scam
    2.Saxena’s arrest which is putting an end to sun pictures era
    3.Tamilnadu political changes .

    All these factors influencing Sun tv price as far I am concerned.

    Thanks for the opportunity.

    Regards,
    Raj.

  16. My choice is Kingfisher airlines.

    The reasons are:
    1.Mtk Cap-2000 Crores
    2.Debt to be converted to equity post debt recast-2660 Crores
    3.Remaining Debt-6000 Crores

    So equity will be diluted by 50% in the first shot itself

    Despite this structuring, the EBITDA margin is only 2% leaving it with v little room for meeting debt obligations

    If oil crosses 150-200$ in the next 5 years, this company may not be able to survive without further debt restructuring

    Nearly all the promoters stake is pledged …this is another big risk factor

    All in all, the wealth of the existing shareholders is headed for a huge haircut

  17. i would vote for Jubilant Foodworks @ 850

    It’s a good company, but gicing it a market cap of 5500 cr or 1.23 B USD is simply insane…

    Compare the valuations with Dominos INC 1.6 B USD, and a PE of just 17 compare to 75 for jubilant

  18. in the heavyweight sector(largecap) the biggestloser will be the junior polyester princeling Anil ambani

    a surprsing canidate may be the ADANI group

    In the midcap category it will be a toss up between The RP GOENKA group and the SUJANA group with KARUTURI having a look in

    In the small cap TOO CLOSE TO CALL there are so many crooks out there

  19. I think power sector is going Telecom Way,
    Now if you look at the proposed power in next 5-6 years is nearly 1.5 L MW(Only by big companies)+small player ie unorganized will be nearly 20% which come out total of nearly 1.8 L MW,
    if you look at RPow there future investment is power sector is very heavily with very high debt of 2.5Billion $ and market cap of nearly 8 billion $ ,so in my opinion this gonna be sick in coming times.

  20. Dear Mr. Gaurav,

    First of all, thank you very much for an opportunity given to me to express my views, by extending the deadline.

    In my humble opinion, it would be SOFTWARE SERVICES sector and companies from that sector (TCS/Infosys/Wipro/HCL Tech etc), which would be the biggest value destroyers in the coming years, in the Indian Equity Market.

    My analysis is based on my own set of reasons, which are listed below.

    1) United States will be in a big financial mess, with its ratings downgraded and unable to raise money at lower rates, sometime after 2012. This should happen after next year’s Presidential election there.

    This will result in a panic kind of situation in the world financial market, and all asset classes except Gold and Silver will take a beating.

    2) Dollar will have a free fall, resulting in currencies of emerging markets getting stronger. Since majority income for software companies is earned in American dollars, this will have a negative impact on their earnings.

    3) Over ownership by FIIs and Retail Public – Leading software companies are over-owned by FII’s. Any ETF redemption pressure from the western world can create a panic in these stocks. This should result in a bigger fall in over-owned companies compared to broader market.

    4) Contraction of P/E – Bigger software companies suffer from high base syndrome, resulting in their future growth in single digit. When market starts smelling this single digit growth, P/E (discounting) will automatically come down from current high levels.

    I feel, in future, software companies should be given discounting of commodity like companies.

    5) Employment Problems in Customer countries – America is suffering from high unemployment rates, for the third year in running (more than 9%). We have to remember that every additional passing year adds extra job searching people into the job market, and unless American economy recovers and sustains quickly (without QEs), job outsourcing will become a big political issue.

    Basic principle on which Indian software companies grown all these years is – cost arbitrage.

    If Indian software companies start recruiting local work force for projects, fearing political backlash, then this cost advantage will be lost. Hence, margin of 25%-30% will become a history. This also, should bring down the growth of bottom-line, even though we could have a top line growth.

    6) Regulatory issues from customer countries – High unemployment rates in customer markets might force the politicians from these countries to come out with protectionist measures, which will create a hostile market for Indian companies. Recent H1-B visa issue and making Indian companies contribute for their border security (!!!!) are examples for such measures.

    7) Rising cost and quality of work done in India – High wage inflation and quality of work are making Indian companies lose their projects and recently many UK based companies closed their BPO operations in India citing these reasons.

    More information is available here –

    http://articles.economictimes.indiatimes.com/2011-07-14/news/29773439_1_uk-bank-uk-bpo-uk-companies

    8) Competition from China and other South East Asian countries – Western companies which are outsourcing their work from India are looking for diversification (to reduce the risk) and they have started outsourcing their work from China, Philippines and other SE Asian countries.

    India is becoming a victim of its own glory, when it comes to Software Services.

    Above points make me believe that investors in Software Services companies will see their investment value erode in future and companies from this sector might underperform the broader market in a big way.

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