Satyam's Raju Vs Anil Ambani - Corporate Governance
Wednesday, December 24, 2008
The past few days have been terrible for Satyam Computers and B. Ramalinga Raju. The company has been in the news for all wrong reasons first a failed merger of Maytas Properties & Infrastructure into Satyam Computers and the ban by World Bank for Data Theft at Satyam's Campus.B. Raju - Scapegoat of Economic downturn & Activism of Corporate Governance: Yes, you read that right. We believe, B. Raju is the victim in the current scenario. If you have read the book, The Polyester Prince - Biography of Dhirubhai Ambani, you will know how to put dirty corporate governance into practice in India.
We feel, B. Raju and his son should have taken a lesson from Anil Ambani on how to merge or transfer successful projects into different companies. B. Raju got the timing wrong as well and is thus a victim today [Imagine would anybody have objected to this deal had it happened in Dec 2007 ?]. Reliance Power IPO Scam was a much bigger issue but everybody including the regulators were mere spectators.These are just few instances. If you look with a magnifying glass, then you will have less than 100 companies in India who are strictly ethical in their corporate practices.
Taking a leaf from Reliance, Satyam should have invested in Maytas' projects or in SEZ in tranches thus escaping the eyes of Institutional investors. [Recall how Ratan Tata laundered money from Tata Power Company to his Telecom venture resulting in a loss of Rs 250 crore to Tata Power?].
B. Raju - What Should You do Now ?
Reputation knock has been taken. If the Accounting Firm is not your client, disclose its name and clean yours. The only way you can win back shareholders is OUTPERFORM in your core business.
We agree with the following:
Satyam does have poor management practices - justified by World Bank's Ban. Personally, we have experienced, loss of share certificates in the year 2000 which took the company a long time to rectify by which the Tech Boom Saga was over.
M. Rammohan Rao - ISB Dean should Quit:
M. Rammohan Rao, the Dean of Indian School of Business chaired the board meeting which passed the Satyam + Maytas deal. If the Dean of ISB is involved in such poor corporate practices, what about the students he teaches, recommends and are passing out of the Biz School ? Can we trust the self claimed India's Prestigious / Best Business School anymore ?
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Published by Webmaster @ 1:42 AM IST.
Satyam Computers + Maytas Scam on Conference Call
Tuesday, December 23, 2008
The Rajus of Satyam Computer who had painted a fantastic picture of their IT Services [we call it modern day slave trading] business appear to be skating on a thin layer of ice with global meltdown in BFSI segment. The company absolutely has no corporate governance.The management came for a face saving exercise and decided to host an analyst call. We are presenting an excerpt from the same,
Rukhshad Shroff: I think that the deal is very well understood. I think we will just to have to disagree on the value prospect and if the businesses are so attractive and valuable, I'm entirely surprised why the promoters are parting with it when they own between 50 and 100% of this to minority shareholders given the growth prospects and the attractiveness of the business.
Hiding Accounting Firm's Name - Ter*0rists of the Financial World:
Jayesh Shroff: I just wanted to know who were the valuers for this deal and why the management didn't think of returning the money to shareholders rather than paying back to the promoters of the company?
Srinivas Vadlamani: The evaluations have been assisted by a Big Four firm.
Jayesh Shroff: I want the name sir
Srinivas Vadlamani: No, no, we will not be able to disclose the name, but Big Four firm has - have assisted us.
Who was taking your money from the deal ?
Jayesh Shroff: No, no, that means - I mean will this money go to the promoters of Maytas Properties or will this go to Maytas Properties?
B. Ramalinga Raju: This money will go to the promoters of Maytas Properties
Ramalinga Raju is shaken as his IT business is coming to an end:
Jayesh Shroff: No foreign investor in the country will track any Indian company after your move. Do you understand the implication of this move, sir?
B. Ramalinga Raju: See I - that means...
Most violation of the corporate governance practices, if you did - cannot see any opportunity in pursuing any acquisition or further growth in IT you should have returned the money to shareholders. You had no business, wasting money and paying back the promoters of Satyam and promoters of Maytas Properties.
Chetan Sehgal of Temepleton Asset Management wants to Block the Deal
Mr. Raju. First of all on behalf of Templeton, I would like to say that we are totally opposed to this decision. We think that the decision of doing a transaction with related parties will deplete Satyam Computer Services of tax resources. We do think that returning share, money to the shareholders was a better option. I think even if people, investors want to play the property theme or the infrastructure theme, they can do so as mutual funds and institutional investors. The point is that we do not want this decision to be taken and we are willing to go to any length to prevent this thing from happening. Apart from the odd ownership which you have
and the management opposition you enjoy in the company, there are also minority shareholders which are existing and we think that it will be in the best interest that Satyam withdraws this proposal.
If you want to rad the transcripts of the entire conference call, leave a comment here.
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Published by Webmaster @ 3:12 PM IST.
Book Profits in the Rally
Sunday, December 21, 2008
The Indian market has exhibited some strength over the past few weeks. The market is now in its eighth week of rise from its October intra-day lows.
The BSE Sensex is up 31% since its October lows and this is the fourth time since the bear market started in January that we've seen a rally of 20%+ and the longest one thus far. The broad market has started to outperform the narrow market with a 5% outperformance over the past week.
We think investors should booking profits. Fundamentals remain weak and we do not think valuations have become "cheap" - although they are fair (Exhibit 5). Earnings for this quarter are likely to be quite bad when they are announced in January. This is a typical year-end rally which tends to sell off in February.
This is significant divergence from what Financial Astrologer has predicted :-) Anyway, our goal is to stay for long term in the market eating profits wherever possible :-)
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Published by Webmaster @ 12:17 PM IST.
Apollo Hospitals - Review
Tuesday, December 16, 2008
The Apollo Hospitals group today includes over 10,000 beds across 43 hospitals in India and overseas, neighbourhood diagnostic clinics, extensive chain of Apollo Pharmacies, medical BPO, health insurance services and clinical research divisions.Apollo also has a well diversified presence across the value chain of health care services - Apollo Clinics (to cater to the out patient medical requirements), medical BPO and health insurance services. Tie ups with foreign health insurance companies as a part of medical outsourcing to India and strategies to acquire hospital chains abroad also augur well for the prospects of the company.
Performance Update - Q2 FY 09:
Revenues up 30% to Rs.365cr and EBIDTA up 33% to Rs.62.57cr. Profits grew 28% to Rs.30.13cr. Other income was up substantially from Rs.0.77cr to Rs.5.48cr. Both the business segments reported reasonably strong growth – pharmacy segment registered ~70% growth and healthcare services grew ~22%.
Occupancy rates increased to 82% in the 2nd quarter from 76% in the previous quarter. Pharmacy stores increased to 705. FIIs hold more than 51% stake in the company. Apollo is expected to report an EPS of Rs 25 for FY09.
You can read about Fortis Healtcare and Hospitals review here.
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Published by Webmaster @ 3:34 PM IST.
Great Offshore - Review
Sunday, December 14, 2008
Great Offshore's promoters pledged ~13% of their equity holding with Bharati Shipyard to raise money. The shares are pledged with two wholly owned subsidiaries of Bharati Shipyard. While this does not have a fundamental impact on Great Offshore's financials, it does raise concerns on the promoter's ability to withhold a stock liquidation.
Q2FY09 revenue slipped by 5% y-o-y to Rs 1593.4 mn and 21% q-o-q. The decline in revenue was due to a decrease in revenue days as two platform supply vessels and a multi support vessel had to undergo emergency repairs. Other income stood at Rs 209.1 mn, up by 21% y-o-y on account of a forex gain of Rs 207 mn due to fluctuation in forex rates.
Bharati Shipyard may delay the delivery of the rig from December 2008 to March 2009. A delay in delivery by one quarter could reduce our FY10 EPS by 7%. In addition, checks indicate that the offshore support vessel (OSV) pricing is holding up for most of the contracts signed until the end of May 2009.
In the near term, there could be a lower utilisation rate and dayrates. In addition, the recent concerns' surrounding the stock and the financial health of the company.
The core business has not shown severe weakness, the company has on order one 350 ft Jack-up rig and a Multi Purpose Supply Vessel (MSV). The former is expected to join in Q4FY09 and the latter in Q2FY10. Both vessels will drive earnings and improve margins over the next two years. EPS for FY10 is expected to be between Rs 65 to Rs 70. However, for FY09 it is likely to take a beating in the current and next quarter.
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Published by Webmaster @ 2:05 AM IST.
RBI rate cut + Fiscal stimulus package
Monday, December 08, 2008
RBI's Weekend Package included Rate Cuts and Renewed Focus on FCCBs, Exporters and the SME Segment. In line with expectations, the RBI cut both the repo (liquidity injection) and reverse repo (liquidity absorption) rate to 6.5% and 5% respectively. While it may still take time for banks to cut rates meaningfully, what was encouraging was that the RBI has said that it - will try to maintain a comfortable liquidity position, see that the weighted average overnight money market rate is maintained within the repo-reverse repo corridor.
FCCBs - Following last month's measures, wherein the RBI permitted companies to buy back the FCCBs either with their FX resources/fresh ECBs, the RBI has now allowed companies to buy back FCCBs even out of rupee resources subject to certain conditions.
SME Segment - Refinance of Rs 70 bn: In addition to its earlier measure wherein the RBI allowed banks to avail liquidity support up to 1% of their NDTL to provide finance to micro and small enterprises, the RBI has now provided refinance of Rs70bn to the Small Industries Development Bank of India up to Mar 2010.
For Exporters - In addition to the earlier measure of extending the period for concessional credit from 6M to 9M, given the tightness in credit markets, the RBI has now decided to extend this facility to overdue bills up to 6M from the date of advance.
Fiscal Stimulus Package:
We call this a real intelligent move by the new Finance Minister Dr. Manmohan Singh. What the Government essentially did was offset the gains in Petrol, Diesel and Fertilizer subsidy bill towards this stimulus package thus maintaining the fiscal deficit at around 8.4% of GDP which will remain unchanged for FY09 as of now
The fiscal stimulus package includes, reduction in the central VAT rate by 4 percentage points (from 14% to 10%), and sops for the exports, textiles, housing, and infrastructure sectors. We expect the reduction in the VAT to be passed on to consumers and help in supporting consumer demand.
Key measures for exporters include - reduction in pre/post shipment export credit, additional allocation of Rs3.5bn for export-incentive schemes, Rs11bn for refund of terminal excise duty/CST; a back-up guarantee of Rs3.5bn to ECGC to enable it to provide guarantee for exports and service tax refunds, subject to conditions.
To facilitate financial closure for infrastructure projects under the PPP route, the government has permitted IIFCL to raise taxfree bonds to the tune of Rs100bn.
Overall this is very positive development, but unfortunately, downside risks still remain high and we view the markets with cautious optimism in the short term and maintain bearish outlook in the mid-long term.
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Published by Webmaster @ 12:33 PM IST.
What's Holding India + What will Boost It ?
Saturday, December 06, 2008
During the past five years (F2003-2008), India has received cumulative inflows of US$224 billion. This serviced India’s biggest ever credit and capital spending cycle. India's outstanding credit grew from US$189 billion in March 2003 to US$643 billion by March 2008. Over that time, the country spent US$1.4 trillion on investment. It's no surprise that growth accelerated and averaged nearly 9% during this period.India's infrastructure was not ready for this growth, and combined with the surge in global commodity prices (again reflecting unprecedented global growth for mostly the same reasons), inflation surged - a classic case of overheating. Of course, the Central Bank took prompt action, but it has left us with a cyclical slowdown in growth. If capital flows recede, a natural outcome of the ongoing global crises, India’s growth will hurt further.
During the same period, the BSE Sensex constituents on aggregate, have grown earnings fivefold in five years from Rs247 billion to Rs1,215 billion. If earnings fall in the coming quarters, it should surprise nobody. Morgan Stanley expects broad market earnings to decline by 10%-15% in F2010 and ROE to decline in the coming 18 months. India still trades at a premium of 25% to emerging markets.
What will be a Big Booster to the Market:
Global Economic Crisis should Calm down.
Credit growth needs to go below deposit growth for a sustained period so that banks' balance sheets become more liquid.
Infrastructure Spending: The government will need to boost infrastructure spending and also cut tax rates. This cannot be funded using public debt and hence as corollary government will need to privatize assets or raise multi-lateral agency loans.
Election Verdit - India should avoid a fractured verdict.
Morgan expects earnings to grow 2% in FY09 and fall by 10% in FY2010.
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Published by Webmaster @ 10:26 AM IST.
Jagran Prakashan - Newsprint Sales Strong
Wednesday, December 03, 2008
Despite the slowing economy, Jagran Prakashan has demonstrated benefits of market leadership and conservative management in a downturn by posting 18% YoY revenue growth in 2Q.Jagran reported Q2 FY09 revenue growth of 18%YoY to Rs2.1bn as a 25% growth in local advertising helped it counter slowing growth in national advertising. Company has also said that October was the strongest month on record. Jagran is also benefiting from a 25% hike in Government ad rates (12% of ad revenues) and expects that with general elections round the corner, government ads contribution will rise further. In the past 8 years, print ad revenue growth was slowest in FY03 at 6% and for Jagran at 17% in FY05.
Jagran Prakashan is expected to report an EPS of Rs 3.5 for FY09 and Rs 4.35 for FY10. A strong franchise, current state elections and general elections in Q4 and a conservative management with a balance sheet support makes the stock an outperformer. Conesnus target estimates for the stock is Rs 72.
Why is Jagran Prakashan not in BSE 200 ?
Since ages we all know how BSE has been functioning and how members influence the inclusion of stock in the index. We quickly ran through the BSE-200 and found companies with absolutely no business model or too new into business - Bajaj Holdings and Investments, Indiabulls Real Estate, Jai Corp, RNRL, Reliance Power occupying slots which could be made way for rock solid businesses like Jagran Prakashan.
Jagran has doubled its Sales every 3 years in the past and has always been a profitable company. Jagran has the largest market share of newsprint in India and is the highest read daily in the world [Dainink Jagran - 16.29 mn copies read everyday, Dainik Bhaskar - 13 mn copies read everyday]. Jagran hosts the World's Largest Hindi Portal in association with Yahoo!.
It is not just our politicians who are shady but folks in the BSE are as well, tuning and twisting laws favorable to vested interest members.
Labels: Flawed-BSE-200-Index
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Published by Sunil K @ 2:25 PM IST.
Citi Downgrades Indian Hotels + Leela + EIH
Monday, December 01, 2008
Due to the recent happenings in Mumbai, Hotels was the most vulnerable sector already reeling under the pressure of economic slowdown and Travel Budget Cuts. The recent attacks will significantly impact business/tourist traffic (occupancy/RevPARs) across India, further deteriorating the earnings outlook for hotels, which witnessed a muted 1H on lower occupancy of 64% (down 300bps) and moderating ARR growth of 12%.With flagship Mumbai properties, contributing ~15% of Indian Hoteks sales and 38% of EIH revenues being severely damaged. The managements have yet to determine the cost of damage and timing to re-open. Taj Mahal Hotel owned by Indian Hotels could take more than a year to open while the impact would be severe on EIH given its Mumbai concentration.
Citi has revised forecast for all the three major Hotel Chains - Indian, EIH and Leela. Earnings of Indian Hotels is expected to be Rs 4.7 for FY09 and Rs 4.6 for FY10. While that for EIH EPS is expected to decline from Rs 4.6 in FY09 to Rs 4.0 in FY10. Hotel Leela is also expected to witness a decrease in EPS for FY10 to Rs 2.1 compared to Rs 2.7 for FY09.
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Published by Webmaster @ 11:53 PM IST.
Corporate India - The Aftermath of Mumbai
In the wake of the events in Mumbai last week, investors could turn more defensive. We feel that because of the resilient spirit of the society, valuations in the market and likely other support from investors and governments everywhere, there is some chance [though little] of any lasting economic or market impact, except for in some select sectors, where it is inevitable.Additionally, with the change of guard in the Finance Ministry will have almost no impact as Dr. Singh was constantly in touch with the developments through his trusted lieutenants in the south block including Dr. Montek Singh and Dr. Rangrajan.
The immediate impact of past attacks on equity markets has not been significant. The indices have shown falls of less than 0.75% in most instances with only 1 or 2 instances of fall of over 1%. The general weakness in the markets may cause some downward pressure. Foreign tourist inflows are likely to slow down. Western countries have either issued travel advisories or cautions. Media has reported about 15% cancellations in airline bookings currently and Hotels is the only sector to be hurt immediately.
RBI has announced further measures aimed at supporting domestic liquidity, with particular emphasis on sectors that may be facing some degree of stress. In recognition of the weakening and challenging conditions in capital markets, our suggested picks are those backed by strong structural growth themes with healthy cash flows.
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Published by Komal M @ 1:53 PM IST.
