Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

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Vultures Circling on US Auto Makers

with 14 comments

0811-016-vultures-on-auto-makers

Ref: 0811-016 of 2008/11/23

 

Wall Street and Private Equity vultures are at it again. They are aided and abetted by Republican senators and its sponsoring media with well orchestrated campaign to cause the death of the United States’ biggest employer – General Motors, Ford and Chrysler.


The vultures are interested in causing deliberate bankruptcies so that all the equity and options owned by United Auto Workers in their respective companies be turned worthless, the pension fund liabilities avoided partly or altogether, the health and insurance benefits to retirees reduced to zero, termination benefits also reduced substantially for want of funds, and the companies so stripped off its statutory liabilities be bought over in Bankruptcy Court for a song.

 

The officials from FED, Treasury, Office of the President, and hosts of senators mainly from Republican Party want to rehearse the events of United Airlines, WorldCom, Bethlehem Steel and lately Lehman Brothers, all of whom were allowed to go bankrupt to the detriment of all its workers and employees

 

Destroy the United Auto Workers…

REASON, all these companies were partly or majority owned by the Employees or Workers, which acted as “eyesore” to the brokers on the Wall Street and predators- Private
Equity firms.

 

The Courts of United States also favor the predators. They also award the companies to those vultures by refusing to let the company liquidated compulsorily, but handing over to bond or debenture holders by allowing writing off the entire equity of the company, so that the employees are not left with any power without money.

 

The whole system sucks – from monetary (FED & Treasury) to Political (Senators and Representatives), to Executive (President) to Judiciary arm (Courts) – all are corrupted by the wily suckers on the Wall Street who use its orchestrated media – in print or television. Day in and out, you tune in to CNBC, NBC, Fox News, CNN or CBS or read Wall Street Journal, Barron’s, Business Week, Forbes who all praise such actions in the name of saving the company and enforcing cost savings.

Even today, the questions are asked – why Lehman Brothers were allowed to fail. Why not Merrill Lynch, Bear Stearns, Morgan Stanley, or even Goldman Sachs?

 

What is so common in rest of four and unique in Lehman Brothers? The answer is LHB was majority owned by employees. The employees or workers are treated like disposable diapers in United States, whatever is the outer façade to describe them.

 

It happened to United Airlines only in recent past…

Why United Airlines was allowed to fail and thrown into bankruptcy court – because it was majority owned by employees. All of their shareholdings were reduced to ZERO by the bankruptcy court and awarded the company to the debt holders who deliberately bought debts to exercise the control. The life time savings of all employees were lost in a flash like homes destroyed in Californian wild fires.

 

The debt holders were given the new equity at most favorable terms and reducing all past equities (majority owned by workers or employees) to Zero value. If the company was still worth, the question arises why UA was not placed by the court on auction block with open and transparent public tender or why was it not sold part by part to realize the best value? The stocks owned by employees were reduced to zero and the new stocks awarded to debt holders in exchange of debt soared to as high as $ 49 from just under few cents.

 

All have been accomplished in the name of free enterprise, freedom, capitalism, efficiency of the capital market, and similar nouns and adjectives. They invent new names, phrases or synonyms from Roget’s Thesaurus.

 

Wall Street Brokers Cheers and Jeers at the Loss of Other People’s Jobs

Whenever a company merges or taken over by a predator, announcements are made to dismiss the thousands of employees in the name of cost cutting exercise and boosting the profits. Wall Street Brokers from Goldman Sachs, Morgan Stanley, Smith Barney, Merrill Lynch, UBS and all down the line, applaud such moves and start recommending the respective stocks by shooting them up by 10% to 50% in a few days.

 

While the thousands of laid off employees live sleepless nights, sobbing until dawn how to meet the mortgages or tuition fees of their kids, the irresponsible brokers and investment bankers on the Wall Street go on celebrating in high profile parties hitting wine or champagne glasses with the shouts of “cheers”. They are interviewed on popular channels like CNBC or Bloomberg by Anchors with glee on their faces.

 

There could not have been better shameless spectacle. Read every take over in the past or mega merger, you will find the same gimmicks all the time.

 

Consign the Wall Street Brokers and Investment Bankers to Guantanamo Bay…

It is therefore highly a celebration event that finally the Wall Street brokers saw what they deserved most. Thousands of Wall Street brokers are now being laid off in worst ever crisis which was their own making. They now realize how it feels like losing a job – celebrating with wine glass or with full glass of tears of their loved ones.

 

There should be no sympathy for all these bankers, Investment bankers and brokers – they should be condemned and consigned to Guantanamo Bay Detention Camp. Osama Bin Laden may have caused pain only once – on 911. But these Wall Street brokers, banks and investment banks are the biggest financial terrorists who cause pains every day to every family in United States.

 

$ 218 Billions charity by Paulson to AIG to help them pay Goldman Sachs, his former company?

And look at the perfidy of Hank Paulson, Treasury Secretary and Ben Bernanke (FED Chief) who have been pouring the billions, even trillions of dollars, into bankrupt banks and brokers for the losses of their offshore arms who never contributed any taxes or employment to the local American Tax Payers.

 

They never asked or justified why the off shore obligations of banks have suddenly become the liability of domestic Americans who have nothing to do with independent off shore operations of those defunct companies.

 

And why does Paulson pays $ 89 billions +$ 129 billions to AIG? Is it because AIG could repay its dues to Goldman Sachs (wild guess is $ 20 billions to $70 billions), a firm of whom he was the President before joining Bush Administration? Yet, the President Bush is so blind and complacent that he can not see the naked truth.

 

Devils’ Donation to Tax Dodgers and Denial to Domestic Tax Paying Corporations.

They are giving hundreds of billions of dollars to “Asset Void Banks with no possibility of Repayment” for the obligations of their off shore operations, the tax dodgers. Same gang is refusing to pay $25 billions to 3 Auto makers – General Motors, Ford, and Chrysler who have been paying billions of dollars of taxes for over 60 years, who have created over 2 million jobs, who have solid assets, who developed thousands of townships, who became the backbone of the American Industrial expansion.

 0811-016-bankruptcy

United Auto Workers may come out in full force to demand full justice and ensure that all the excesses of the past defeating the cause of labor are put to rest. It is now or never for them.

 

NO, this stubborn Paulson and Bernanke say. And the Republican Senators join them – Do not give them $ 25 billions – they are inefficient. As if AIG, Citigroup, JP Morgan Chase, Bank of America who are recipient of over $300 billions were efficient.

 

If these 3 auto makers fail, and 3 million affected Americans are laid off, it will cost $12 Billions per month towards “unemployment allowances” that is over $144 Billions annually, if we consider the recent extension granted by the President Bush. Simple arithmetic – lose $ 25 billions now with full guarantee of repayment or lose $144 billion in a year without any possibility of repayment towards the unemployment allowance alone, loss of tax income if they were gainfully employed is not even counted.


What would you do, if you were the President of United States? 

 

The country is on steep decline. There could be unrest, strong protests, riots, loots, murders, real blood bath on the main streets of United States, if no actions were taken to blunt the attack of the Wall Streeters on the Main Street participants. Can you imagine what happens when 52000 employees of Citi Group and over 2 million direct or indirect employees of 3 Auto makers are suddenly thrown out on the street in just under 7 days? Blue collar workers are normally less tolerant of job losses than white collar employees.

 

It just defies my common sense – how come these VIPs in the White House are pouring hundreds of billions of dollars into bankrupt off shore operations in the form of 100% unsecured advance while denying relatively small but fully secured $25 billions to America’s biggest industry at home – Auto Makers?

 

The present administration has gone absolutely mad, just mad.

 

Kalidas, Hong Kong

Ref: 0811-016 Vultures preying on US Auto Makers

Written by anilselarka

November 24, 2008 at 1:33 am

Helping Indian Industrialists, Mr. Prime Minister

with 20 comments

08-015t-tata-birla

Ref: 0811-015

It is well known that India’s best breed of industrialists Tata (of TISCO and Tata Motors) and Birla (Hindalco) for over 5 decades are in serious trouble while taking up expansion overseas. Yes, they made serious errors and in normal course, they may not have deserved the help for their follies.

0811-015-tata

0811-015-birla

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, the circumstances are entirely different now. We are in middle of severest form of credit crisis. Although Tata and Birla are well known in India, they are not as much known overseas. Since almost all western banks are in trouble, they are unable to raise necessary finance their overseas acquisition – Corus (for Tata Steel), Jaguar (for Tata Motors) and Novelis (for Hindalco). They are now at the mercy of the foreign vultures.


Should India and Indians abandon these worthy Industrialists who created millions of jobs, made India independent in basic industries without foreign help, donated thousands of crores in charities in building temples (Birla Temple in Shahad, Kalyan (Maharashtra)  is one of them), educational institutions like BIT (Birla Institute of Technology), Tata Institute of Social Science (TISC at Chembur, Mumbai) Tata Institute of Fundamental Research (TIFR), hospitals, schools, nurseries, Tata Consultancy Service (TCS) and what not for the benefit of Indian society regardless of cast, creed or color, and also paid thousands of crores of Income Tax, Excise duty, Sales Taxes, Professional taxes to the national and state exchequer for over 60 years?

 

0811-015-man-mohan-singhIt is now pay back time, Mr. Prime Minister and Finance Minster. India and Indians are not those ungrateful bastards. Those who helped this nation deserve all type of help when they are in distress.

 

It is causing sleepless nights to both Ratan Tata (in his early seventy) and Kumar Mangalam Birla (who is relatively younger). They deserve better retirement days. We have to make their lives better towards the fag end of their life in recognition of their contribution to the massive development of India and Indians as whole. These two industrialists never bothered about India’s deep divide religious fabrics while creating industries for themselves and millions of Indian back home. Without them, India would not have been 60% of what it is today.

 

Ratan Tata is going pillar to post for lousy $12 billions whereas Mr. Birla for paltry $5 to 6 billions to finance their overseas acquisitions. When the world is denying them these paltry sum, for its own reasons of bankruptcy, why not India with over $300 billions of Forex reserve which is earning lousy 1 or 2% interest and invested in bankrupt country like USA, help our own businessmen whose acumen is beyond doubt.

 

0811-015-chidambaram

 

Charity begins at home. India as nation must help these two outstanding businessmen. They may not long for Bharat Ratna, Padma Vibhushan, Padma Bhushan or similar khitabs. They need material help at the time of their acute distress. If Indian Forex Reserve does not come to the help of India’s best industrialists, what is the use? Should we allow our Forex reserve for the use of Americans who has been simply wasting all resources and using them to create toxic waste.

 

Indian FOREX Reserve belongs to the Indians and must be used for Indians first and others later.

 

And I do not suggest that you give them free money. Give them the amount required as under after due scrutiny.

 

 

  1. Assess their requirements and be wetted by top financial institution.
  2. Work out how much amount they need
  3. Give them @ 5% in foreign currency non subordinated Convertible Bonds secured by the floating pari pasu charge on their respective enterprise.
    1. Such bonds may carry conversion rights at last 6 months average prices of their respective shares, exercisable only after 5 years.
    2. It may have buy back clause at 8% premium per year for the life of 15 years. This will help these guys to buy back the bonds when they are comfortable without diluting their equity stakes when the things improve.
    3. If the Government wishes, it may sell these bonds in the market with huge profit (because current stock prices are very low), after giving respective companies to buy back the bonds.
  4. When the things improve, they can raise the capital from the market to buy back these bonds.
  5. Give them loans repayable in 15 years due to depression prevailing all over the world.
  6. Ask them to pay special tax @ 3% after initial 5 years so as to relieve the interest burden during early phase of management. National exchequer may also be benefited for help rendered.
  7. Ask them to give India at least 5 hospitals and 5 Technical Institutes with full management rights vested with the respective group companies on purely voluntary basis. (we can trust them)
  8. Ask them to adopt at least 5 villages to make them into model town in next 15 years on voluntary basis. (again, we can trust them)
  9. Indian tax payers are not affected with this help. Their advance is fully secured and given to the industrialists they trust most.

 

This is the only way of really honouring our beloved industrialists. It is not going to set the precedents, if you are worrying about them. Even if it is setting precedent, it is a good one. It is one of the principles enshrined in the Constitution of India under Directive Principles of State Policy from Article 36 to 51. One of the article is quoted below:

 

Directive Principles of State Policy as enshrined in Constitution of India

38.

State to secure a social order for the promotion of welfare of the people.—’[(l)j The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.

2[(2)

The State shall, in particular, strive to minimize the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.]

39.

Certain principles of policy to be followed by the State.—The State shall, in particular, direct its policy towards securing—

(a) That the citizens, men and women equally, have the right to an adequate means of livelihood;

(b) That the ownership and control of the material resources of the community are so distributed as best to subserve the common good:

 

By following above policy, the state will be preserving the jobs of the millions of workers in India

 

Mr. Prime Minister and Mr. Finance Minister, the time is critical. Do not even flinch while extending help. If you do not, their enterprises could slip into foreign hands, could cause huge job losses back home that may have devastating social consequences. The material resources of this country are in danger of losing to foreign hands, if our own people are not helped.

 

This is the appeal not only from this Kalidas (Anil Selarka) but also millions of investors in India. Read the following sample poll from learned investors from India and let them help you in forming your final decision. God Bless India.

 

Kalidas, Hong Kong

16-Nov-2008

Ref: 0811-015- Helping Indian Industrialists


NTT Japan Buys 26% of Tata Tele Services (TTS) for US$ 2.7 Billions (Rs. 12850 crores)

with 8 comments

tata-tele-title1

NEWS

Date of News or Event: 2008/11/12 – Tata Tele Services – NTT DoCoMo- Japan  purchases

NTT DoCoMo Japan’s and perhaps world’s largest telecom company was rumored to have bought 26% stake in India’s Tata Teleservices Ltd (Unlisted), parent of Tata Teleservices (Maharashtra) Ltd. (TTML) a bleeding child of Tata group for over  3 years. The consideration is US$ 2.7 billions or Rs 12,825 crores or Rs 128,250 Millions at current rate of Rs 47.50/dollar.(It may go higher or lower on the date you read this) Bloomberg News links is Bloomberg- NTT Tata deal Also read in greater detail in India’s  Business Standard

 

tata-tele-dealphotoIt is also reported today that a press advertisement has been released in which mandatory offer of Rs 24.70 has been posted under SEBI’s takeover rules.

 

I had posted the article earlier as First Information Analysis based on sketchy details, but withdrawn within hours after realizing that some readers may act impulsively and take large position. Some astute readers did send me 3 comments that forced me to avoid the publication in the interest of potential investors.
 

 

Analysis
This is still a preliminary assessment, because the information released is not enough.  
 

 

1.      It is not known whether NTT buys 26% stake from existing shareholders of the Parent TTS or on its expanded equity…

2.      TTML has 190 crores shares outstanding today. Under mandatory offer of 20%, the company may be required to by about 38 crores of shares from the market. The average volume of this counter has been low of late at 3 Million shares (30 Lakhs) of late, and it used to be over 10 millions shares on NSE alone. It will take 10 days of heavy volume or nearly 20 days of moderate volume on NSE to buy 38 crores of shares (380 millions) from the open market. Look at 6m TTML NSE Volume : Yahoo

a.      The premium offered to be paid is only 25% on closing price on 12-Nov-2008

b.      It seems that the company has worked out the Offer Price in terms of SEBI Regulations for Offer Price – See 20(4)(c) under which average of last 26 weeks high and low is taken as basis.

c.      This is not the correct bid. NTT has paid TTS on the basis of Rs 19,334 per subscriber. TTML reportedly has 5 millions subscribers (as per BS report) in Maharashtra and Mumbai. Thus the valuation comes as under:
 

 

Total Amt Paid by NTT

US$ 2,700 Bln

Rs 12,850 cr

Stake taken by NTT in TTS

26%

 

No. of subscribers TTS has

50 Million

 

Amt offered by NTT/subscriber

Rs 19,334

 

No. of subscribers TTML has

30 Million

 

% of subscribers of TTML/TTS

60%

 

Due share of TTML from NTT

 

Rs 7,710 cr

No. of shares TTML

190 cr

 

Amt due per shareholder

 

Rs 40.58

Current Offer per SEBI

 

Rs 24.20

Discount on Cost Value/share

-67.69%

Rs 16.38

Loss to TTML shareholders/share

-67.69%

Rs 16.38

.3.      As per BS report, NTT appear to have worked out acquisition price based on per subscriber at Rs 19,334. Obviously, NTT may have worked out the purchase price with reference to industry standard ARPU (Average Rate Per User.

4.      Please note that some reports do suggest that TTML has only 30 Mln subscribers (against BS report of 50 Millions). If that is true, the correct price could be Rs 24.35 or as offered now.

 

For NTT, this is a bargain. They are paying less because of 20% appreciation of Yen vs. dollar and 20% depreciation of Rs vs. $. Thus, the deal works out 40% cheaper in favour of NTT in Forex alone. 

 

Other Important Financial Implications:

Depending on the deal,

1.      The TTML will have deep pocket shareholder with latest technology. The past is history

2.      Its debt may disappear sooner or later.  It could be a debt free company in era of monetary crisis

3.      It will have access to latest technology, never seen by any of its competitor, including Vodafone

4.      TTML can now expand at fastest rate. Its rate of growth is over 25% compounded in sales. The growth rate could possibly expand to 50% (CARG) for next 3 years at least

5.      TTML can now bid for major and minor town’s circles and large non-metro cities.

6.      Funding will not be a major problem. While TATA has been under acute pressure, as anticipated by this author 10 months ago, NTT is reportedly having no funding problem. With Yen rising, the funding task become less daunting for NTT

7.      Other operators from Bharati (Airtel), RCom (Anil Ambani’s telecom outfit laden with debt), and Idea (Birla’s outfit laden with heavy debt) will face immense competition. They do not have the level of financing in current difficult credit environments – TTML will outpace them by yards.

8.      On its own, TTML is now on the verge of breaking even. Its current losses are dominated by non cash charge of depreciation. Look at the following numbers

a.      Between 2007 and 08, the sales rose by  Rs 298 crores and losses dropped by Rs 170 crores, That is with incremental sales of Rs 298 crores, the losses were reduced by Rs 170 crores. Current losses are Rs 148 crores, In one more year, the TTML could break even. It could be earlier with this deal.

b.      With increased sales growth next 12 months @40% due to availability of funds with this deal, the increased sale of 680 crores could generate Rs 388 cr of income that could wipe out the deficit of 148 crores and make net gain of about Rs 240 cr. The interest cost (Rs 182 crores) could be reduced to zero If parents remit extra cash to TTML.

c.      It looks like that surplus cash may be retained by the parent TTS and not much cash benefit may accrue to TTML. In fact, the company is entitled to 60% of cash received by parent TTS from NTT. (Rs 9000 crores) being its share of total enterprise value. If it receives Rs 6000 crores (less than 50%), it will wipe out the debt completely and also earn interest income before expansion @ 10% or about Rs 600 crores.

d.      TTML could earn (240 +180 + 600) or Rs 1000 crores given the margin for error. With revised 190 cr shares outstanding, the EPS could be Rs 3.90 or about.

e.      If TTML does not pass on cash benefits to TTML, to which it is entitled to, the EPS may drop by Rs 3 per share or to Rs 0.90 only. In that case, the price target will come down drastically. It all depends how TTS treats TTML – as normal parent or as sucker – to take all gains and pass on all losses.

nasa-08-003-ttml
The stock could therefore see good rise in value in short to longer term. It is also possible that Tata will have to sell larger stake in future, could sell out entire company to NTT, to get out of debt trouble at Tisco and Tata Motor. In any case, even without NTT bid, TTML would have come to profit in 12 months. It would earn about Rs 0.90. If NTT cash is infused proportionately, it could earn Rs 3.90 per share. Its EPS could rise to Rs 10.70 in 3 years based on 40% compounded growth. If credit crisis is settled by then, the stock at could command modest 12x multiples  It can have following target depending on whether the parent pass on cash to TTML to the extent of its contribution to overall business:
 

If TTS TS treats TTML

12/2009

12/2010

12/2011

Normal EPS of TTML on is own

0.90

1.26

1.77

Price range to trade (Conservative)

Rs 14~28

Rs 18~32

Rs 26 ~42

If TTS remits cash to TTML  (Min 6000 cr)

3.90

5.85

9.78

Price Range if cash received (Liberal)

Rs 20~60

Rs 30~80

Rs 60~160

In the absence of information relating to cash benefits, we have to go by the present position of the TTML. The price target (Conservative) as per second row in that case which is not very attractive to own this stock.

If only TTML receives the proportionate cash from its parent TTS, the price target could be higher. Since Ratan Tata is in serious debt trouble, the possibility of TTS parting with large cash is rather remote. Even Tata could behave like Ruia when in trouble. Crows are black everywhere be they from Jamshedpur or Jamnagar.

The purchasing price of Rupee will go higher (don’t look at $ vs. Rupee) domestically. (If property prices go down by 40%, it means that Rupee’s purchasing power has gone up by 40%)

 

Strategy

I have mentioned on MMB that when the parents are in trouble, they sell their children. Ratan Tata made blunder of his life when he bought Corus and then Jaguar just to prove others wrong,. He is in serious trouble now, so he has no choice but to sell his prized companies. TTML was his least priority. He will have to sell VSNL also soon. Even if he wants to sell Corus, he will find no buyers. When I mentioned on MMB 10 months ago that Ratan Tata has made mistake so fatal he will have to sell his Jamshedpur, It was a satirical comment, which was laughed at. And now, I leave it to you.

 

I have much higher upside for TTML now. Even so, my target is as per above table. It is safe to buy. It will be tomorrow’s blue chip. I take the view that the share of Reliance Communication and Idea will go down relatively more.

 

I will therefore buy the stock up to Rs 20. There will not be any counterbid I am sure – no one has money now, even Rs 100 crores, forget 12000 crores. Ask Mukesh and Anil Ambani, they will agree. So will be Kumarmangalam Birla of Hindalco and Jindal. They are all hanging over the fire with heads down. They are crying in wilderness. 

Following is my strategy:

1.      Buy and accumulate TTML up to Rs 20 for 2 months and Rs 16 after the completion of offer.

2.      Also Buy stocks like GTL Infrastructure Ltd who makes telephone towers. I was negative on that stock, but the things have changed. I will post my recommendation later in Stock Watch.

3.      Swap from high debt telecom players. I would sell part of every other telecom stock (15%) and swap them into this one. If TTML is receiving more cash from its parent, then I will sell more of other telecom players (50%) and swap them into TTML.

4.      Since the market is uncertain and heading towards complete liquidation ( it will be apocalypse) in a few days, book the gain periodically and buy back in steep correction (over 500 points or more)

5.      For the time being, it is better to swap less than Rs 40 stocks into this one immediately. Ride the rally, book the gain and go back to your counter if still good.

6.      The stock is not going beyond Rs 20 today – the offer is only for 20% and there is no guarantee that your share will be bought by TTML. It may therefore trade at discount of 10% to 20% from Bid Price or Rs 24.20. It is possible that it may go to max Rs 22 before the close of the offer.

7.      Caution: there could be “reverse split” later on the stock.  It could be 5:1 later because company like NTT does not like penny stock. 5:1 will reduce the number of shares by 80% to 38 cr shares (380 Millions against 1,900 Millions now) . With supply side less, and Fund Managers demand more for this potential Blue Chip, the price rise could be sharper than above target.

 

ACTIONS 

1.    Buy first some small quantity. Be aggressive if the stock goes to Rs 16 or so
2.     
I would buy up to 10,000 shares at current prices (Rs 18 or so)

3.      Swap from other telecom counters which are slow movers or have too much of debt. I would avoid Rcom and Idea only due to high level debt. Both promoters are less liquid.

4.      In 3 years time, this stock could possibly go up 4 to 6 times.

5.      The market overall worsening. It is coming close to total liquidation. So start booking profit if you get opportunity.

Kalidas, Hong Kong

12-Nov-2008

Ref: 0811-014-Tata Tele sells 26% to NTT DoCoMo for US$ 2.6 Billions

 

© 2008 Anil Selarka (Kalidas)

How good is the Reliance Petroleum (RPL) for Investors?

with 24 comments

rpl_plant

How good is the RPL for investors?


NEWS

Mukesh Ambani, a Chemical Engineer and MBA from Stanford, spent billions of dollars to build one of the classiest and greenest refinery complex in the world, considered world’s sixth largest, with a capacity of 580,000 bpsd (barrels per streaming day) and 900,000 tons of Polypropylene plant which is nearly completed. Note the following: It was about to come on stream in December 08, but it has been delayed until January 09. Almost US$ 5.5 billions or Rs 24000 crores has been spent so far.

 

The stock prices have gyrated in sheer speculation from Rs 80 to Rs 250 without anyone knowing what , when and how much the company being invested in will make money. This baby almost 5 years in mother’s womb will come into this world when

1. Oil prices were riding high – a positive for the company to enlarge the margin in absolute terms

2. Polypropylene prices were falling flat

3. Unprecedented credit crisis was catching every businessman by the throat

4. Easy money was disappearing fast .

5. Debt market was getting extremely difficult when its debt rose to almost 12000 crores

6. Equity market collapsed which was the easiest source to replace debt.

7. Interest rates are rising when the debt load was becoming burdensome on its own

8. Credit Default Swaps, Interest Rate Swaps and Forex swaps have become almost dead when RPL’s exposure has increased to almost 7000 crores, although Mr. Mukesh Ambani was very specific in asserting that it was only for its own hedge position.

9. RPL was investing almost Rs 2400 crores in FMP other Mutual Funds to earn daily dividend when the redemption pressure was building on them at the fastest pace. There is no guarantee that he will get the cash as and when needed.

10. RPL was having only Rs 2 crores in kitty against its investment of over Rs 24000 crores in the plant.

11. The parent company Reliance Industries Ltd. (RIL) that own 70% of shares of RPL, is finding marked slowdown in its business at Patalganga, Maharashtra. 400 employees have taken up VRS (Voluntary Retirement) and 800 more are about to take.

12. All 5 plants at Patalganga were closed down recently – though RIL says it was for maintenance purpose. No one closes all plants at same time for maintenance. And it never happened in the past. This news caused sharpest fall in stock prices of RIL over – 10% in a day.

13. The positive news is the plant comes on stream when the world is lacking refining capacity, especially in USA. It will take 3 to 6 years to build similar factory. The plant is situated in Special Economic Zone ready to export to USA if needed for next 5 years at higher margin.

14. The product mix of this refinery is also in conformity with the recent green regulations. Like organic food, the products like Jet-Kero command higher margin. How long we do not know.

15. In short, this baby is borne when there is no more milk around, neither with the mother RIL nor with the foster parents – Investors nor at the hospital (banks). No one wants to play with this soon to cry baby or kiss her with playful message like Aa loo loo, Aa loo loo, gili gili gili gili.

 

For the convenience of the readers here, I have kept RPL Report for YE 31-03-2008 in the download section (side bar). Readers are also encouraged to download POKAT Reader, a flipping type of PDF reader (free), by which you can read the entire report like a book flipping pages on the computer effortlessly and zooming only the page you want to read. The link is www.pokat.net

 


Analysis

Let us take the earnings of the company which is the key for the support of share prices. So far, the stock prices of RPL were based on the name of Reliance, Ambani, past successes and penchant of Ambani’s family to give bonus shares from time to time (Indian investors are mad at the bonus event which is nothing but stock price neutral event).

Full production capacity of 580,000 bpsd

(GRM = Gross Refining Margin)

GRM @ $ 12.50/brl as per press report (RPL says only $5.20/brls as per old report. Essar Oil reported GRM at 6.59 for Sep 08 and $12.54 for June 08 in Q2 report)

$

7.250,000

 

 

For 360 days = C3 * 360

$

2,610,000,000

 

Polypropylene

900,000 Capacity

Presuming working at 90% capacity = 810,000 MT @ 1450/Mt (Ruling price $1600 – 10% for recession effect)

$

1,174,500,000

 

ADD Bye Product Sales @ 15% of Refining Operation

 

391,500,000

 

Gross Revenue (treating GRM part as Revenue)

$

4,176,000,000

4,176,000,000

LESS Cost of Sales and exp. for Polypropylene @ 80%

$

939,600,000

 

LESS Cost of Sales, Admin & Misc for refining @ 80%

$

1,827,000,000

2,766,600,000

Earning before dep+Int+Taxes =EBDIT

$

……..

1,409,400,000

TOTAL in Rupee terms ($ 1 = Rs 48)

Rs

6,765,120,000

6,765,120,000

In crores of Rupees =

Rs

6,765 cr

6,765 cr

LESS: Depreciation on straight Line basis @ 10%

Rs

2,400 cr

2,400 cr

Interest Cost – Long Term

(Earlier the interest during construction stage was capitalized. Once the plant become operational, it will have to be debited to P/L account.)

 

Provision for Exchange Loss on LT Loans in F/Currencies

(Rupee has devalued by 8% (average) since the loans raised)

Interest Cost (Short Term)

Until now, there was no working capital (WC) requirement. Once the plant become operational, WC will be

US$ 1.392 Bln or Rs 6.682 Cr for 1 month

(10 days for transportation of crude + 20 days of production and distribution and credit)

PLUS

US$ 218 Mln or Rs 1,047 Cr @2 months for Polypropylene

= Rs 7,729 Cr – Bank Finance 7000 cr

Interest Cost @ 14% at current rate = 980 cr

Rs

 

 

 

 

Rs

 

 

 

 

 

 

 

 

 

 

 

Rs

1,200 cr

 

 

 

 

800 cr

 

 

 

 

 

 

 

 

 

 

 

980 cr

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,980 cr

Net Profit before Taxes

Rs

1,385 cr

 

 

LESS Taxation @ 0 % (Corporate tax) due to extra depreciation allowed from income tax of view (Straight line depreciation is added with extra depreciation of 50% for Initial depreciation and two more shift allowance). The income on PP being in SEZ may not be subject to tax

Rs

0

Profit After Tax (PAT) attributable to Share Holders

$

….

1,385 cr

No of shares outstanding

 

 

450 cr

Earning per Share (EPS) on full capacity basis

 

 

Rs 3.08 /share

PE ratio allowable for RPL

Industry wise PE ratio is 7 to 8 times

Allowing max 20% premium for private company

Maximum P/E ratio allowable for RPL is 9.6 times

 

9.6 times

 

Maximum Fair Value Equity Price (PE x EPS) for RPL

Rs

 

30

Margin of Error

 

20%

 

Possible Fair Value Price of RPL on Upside

Rs

 

36

Possible Fair value Price of RPL on Downside

Rs

 

21

Momentum Price on Upside/.Downside (Factor +/- 1.5)

When the momentum gains on upside or downside, the stock overshoots by 30% to 50% on either side minimum. On low value stocks (below Rs 35) the volatility is more towards 50%

Rs

 

Rs 31 to Rs 54

Key Numbers and Ratio of Listed Companies in Oil Refining Industry

All figures are for Year ended 31-Mar-2008

In Crores Rs

Essar Oil

RPL

IOC

BPCL

HPCL

MRPL

Gross Revenue

563

0

247,351

110,208

104,313

32,566

Gross Revenue per Share

*378

178

2,079

3,061

3,068

185

EBIDT

-35

0

14,454

4,242

2,781

2,258

Taxes paid

0

0

3,104

1,010

382

342

Profit after Taxes

-42

0

6,962

1,581

1,135

1,272

PAT % of Gross Revenue

-7.21

0

2.82

1.44

1.09

3.91

Net Worth

3,600

13,449

41,086

11,677

10,563

3,783

No. of Shares

119

450

119

36

34

176

Total Debt

10,015

12,827

35,523

15,022

16,787

2,058

Total Debt to Equity

 

 

 

 

 

 

Market Cap on 08/11/07

9,871

38,340

43,802

12,008

7,518

7,477

Book Value

31

30

345

284

311

22

Stock Price 2008/11/07

82

82

369

332

222

43

EPS 2008/03/31

-0.35

0

58

44

33

7

PE Ratio 2008/11/07

NA

NA

6.37

7.55

6.73

6.15

Projected Revenue

45,000

80,000

 

 

 

 

Projected EPS

NA

3.00

 

 

 

 


1.
Both Essar and RPL will have to charge significant interest on their debt to P/L account. Until now, it was capitalized. There will also be interest payable on working capital requirements from this year onward due to refineries having become operational. Taking 2 months of Gross Revenue as new Working Capital related debt, it may work out to Rs 1000 crores per year considering high PLR in India today. This is in addition to interest payable on Long Term loans. While arriving at RPL’s profit earlier, we have accounted for Rs 980 crores as interest on working capital

2. RIL will be extremely pressured to raise more capital in difficult market. Essar too will be under pressure but to less extent.

3. Both Essar and RPL will have to provide depreciation chargeable to P/L from this year onwards due to their plant having become operational. No Depreciation was provided earlier.

4. Gross Revenue for RPL is based on average crude price of $80/barrels + PP business.

5. Gross Revenue per share for Essar and RPL is projected one based on full 12 months of operation

                   

 

 

It may be noted that RIL may not clock as much revenue as projected. We do not know yet, whether PP facility will be fully operational this year or made operational due to price pressure.

 


Derivative Exposure of Reliance Petroleum Ltd

Refer to the annual report for 31-03-2008. It is available for download from Company’s website. Its PDF copy is kept in download section of the side bar. Before jumping to any conclusion, please read the official report.

 

Until 31-03-2008, the RPL was having twin liability under Term Loans. – Foreign Currency Term Loans equivalent of over Rs 10,000 crores (see the report for exact numbers) and Term Loan in Indian Rupees up to Rs 2200 crores. At the same time, the Derivative exposures amounted to over Rs 7700 crores in the form of Interest Rate Swaps (4413 crores), Currency Swaps (1447 crores), Options (1205 crores) and Forward Contracts (667 crores).

 

It also says the company had unrealized gains on 31-03-2008 (how much we do not know). It also says that Foreign Currency Exposures of over Rs 10,807 crores was NOT hedged. The question arises, when Term Loan in Rupee exposure on 31-03-2008 was just 2200 crores, and the company was not even operational, where was the need for the company to have derivative exposures of Rs 7700 crores?

rpl-derivatives11 Source: Annual Report for Year ended 31-03-2008 of Reliance Petroleum Limited

 

rpl-loans-outstanding

Let us not speculate and hope that everything is well on derivative fronts. It would be better if the company reports the latest status in Quarterly report preferably with Auditor’s comments, whether these contracts have been valued on MTM (Marked to Market) or HTM (Held Till Maturity) basis. What is the latest valuation? This is important due to acute credit crisis brewing on derivative front.

Where Mukesh Ambani could have possibly gone wrong?

Dhirubhai Ambani, Mukesh’s father, built Reliance group on “equity”. It resorted to temporary debt during construction process in the form of mandatorily fully convertible debentures that had maturity time roughly coinciding with the relative Plant coming on stream. He also realized that the Indian Investors were crazy for Bonus shares (which are neutral event everywhere in the world), so instead of paying hefty cash dividend, he used to distribute paper – Bonus shares. And it worked the magic.

 

When RIL set up its first Petroleum refinery (not RPL), it was financed based on Fully Convertible Debentures (FCD). At the same time, Birla floated MRPL and it was financed by high fixed rate bonds. The result was that MRPL was almost broke. It was finally sold over to ONGC for just Rs 2/share (current price Rs 40 or having seen much higher price)

 

Mukesh Ambani made the same error as Birla did. He relied more on debt than equity. He was also enticed by low rate foreign currency loans which amount to Rs 10000 crores or more. He is now caught in a dilemma

1. The oil prices have moved North in last 18 months – almost trebled

2. He could not have anticipated the kind of credit crisis unfolding now.

3. The Debt market is almost dead. It is difficult to raise new money. Jindal, Birla (Hindalco) and Tata (TISCO and Tata Motor) made high end acquisitions at the height of the market and at the height of product cycle.

4. Banks and Brokers collapsed

5. Equity market is almost dead. So much of money has been demanded by banks themselves that nothing is left for the other industries.

6. He has no doubt built one of the finest and classiest refineries, a grand achievement in his technical career of Chemical Engineer, he appear to have faltered on financial front. His MBA did not come to his help. He did not have intelligent and forward looking finance professionals who could have foreseen at least 50% of current events.

7.

He does have advantage of having extra ordinary refinery when the world is facing shortage and there is not enough financial muscle for anyone to go for such refinery in near future of 5 to 7 years. There is no financing available except from Arabs and some sovereign funds. It is possible that he may override the restrictions on refining margins by processing the crude for US which severely lacks the refining capacity.
What could happen to RPL stock – Will it make money?
 

 

The product market, currency market, debt market and equity market are all against him. Howsoever capable he may be, he will be running uphill battle for a long time from now on. The best days for Reliance group are nearly over – nothing regrettable – all are in same boat. He has found Patalganga plant unviable, that is why, he is encouraging employees to leave RIL on VRS basis. His retail ventures have also failed; hi petrol stations have also closed down due to price control ( that means that old magic of influencing Government is now waning).

 

Look at the comparative numbers in the table. RPL has largest number of shares – 450 crores against 34 to 36 crores for BPCL and HPCL, 120 crores for IOC and Essar Oil, 176 crores for MRPL for almost similar size or higher size of operation. With huge yet manageable debt load, the effect on EPS is substantial.

 

Further, he will be forced to reverse split the shares (4 to 1) to reduce the floating share size ( he alone owns 70% through RIL). When Reliance was in habit of giving Bonus shares to boost its share value, he will be forced to change that practice. If share prices go too low, the stock becomes “Penny Stock” that does not permit US Pension and Retirement Funds to invest into this company.

He has to ensure that the stock price remains above US$ 5 level, that is Rs 250 or more ($ 8 or Rs 400 is better due to down market that we are in) to ensure that it does not degenerate into a penny stock – A Giant company with a Penny Stock?. It will hurt the image when he needs it most.

 

Even without derivative contracts (presuming all is well), the stock’s earnings do not give me enough confidence,. Why should I pay 27 times earnings, if others are trading at 6 to 7 times. May be we can consider 8 to 9 times, but not beyond. The stock is suitable for trading in Rs 30 to Rs 60 range.

 

Am I correct in my Assessment?

My assessment is reasonable, but I did not have the luxury of having full knowledge of the proper product mix and the precise time table for placing the entire plant into production. I have relied on macro factors that are usually ignored by others, like potential damaging effects of derivative contracts if they are not what is stated to be in nature. Further, read RPL Annual Report. It is sketchy and dwells into the glory of the past and its promoters. We know that already – go a bit further, Mukesh– give us some specifics what is going to be the product mix, capacity of each product, indicative time table and the markets.

 

What I would suggest, and not many may be equipped with that, is to read some industry standard research report on RPL from one of the leading brokers with this opinion, and then arrive at reasonable conclusion. If my assessment is found to be flawed, just amend it or ignore it altogether. Do not press panic button on the stock and run for the exit.

 

Strategy

If I were you, I would do the following:

1. Reduce the position by 50% at least without waiting for anyone. If your cost is over Rs 120, may be you can hold and think of averaging later.

2. If you hear anything negative on derivative front, simply run for exit. It is really a cause of concern. There is nothing evident if we accept the company’s written statement at face value. Check the latest Quarterly report, and read the notes on accounts and Auditor’s comments.

3. Try to check the prospective EPS on RPL for the coming year from 2 or 3 leading bank or broker’s reports. If the projected EPS is more than Rs 15, stay with it – otherwise think of reducing the position in your portfolio. The time is so good, that there are hundreds of more valuable stocks than RPL in the market place today, and that list increasing day by day.

4. Do not invest too heavily into this counter, unless you have fairly reliable information from brokers or banks or company itself.

5. This is one of the finest Refining company in India, but the value is more important than name. Yes, with equal fundamentals, I would still trust Mukesh Ambani and not Essar Oil. But the things are beginning to become clear. At the moment, I believe Essar Oil is better choice than RPL

6. Even big names fail to perform – look at Birla (Hindalco), Ratan Tata (TISCO and Tata Motor). Easy money pushed these industrialists to venture into unknown with disastrous result. Even Warren Buffet is failing. His Berkshire profits were down by 77% and the derivatives have begun to hurt his insurance outfit as well. His best days are also over. No one is infallible in this market catastrophy.

7. Try to buy back this stock only after some positive news come out and other unknowns like derivatives are known to you. It is better to pay little more with full knowledge, than paying very low in total darkness.

8. If your investment is substantial, better contact RIL’s PR and seek necessary clarifications.

 

Action

1. Reduce the position by 50% and buy back only after the stock falls below 50.

2. If your investment is over Rs 10 lacs, better consult your Investment advisor or broker who has more information on this stock.

3. Try to sell now even if you want to stay with the stock, with a view to buying back after 20-Nov because of Oil Futures are coming to settlement and huge short position is likely to be unwound. There are over 282000 contracts outstanding on NYMEX alone. (= 282 million barrels of Crude Oil Sweet). If oil rises, the refineries, airlines and auto may fall still further.

4. OPEC may reduce the output again in next 2 or 3 days. Already OPEC chief made this statement yesterday about production cut.

5. Buy back the stock after 20/24 Nov 2008 and see how the oil behaved or mis-behaved.

6. Raise the cash now and think of re-entering after 24 Nov. Meanwhile, take a few days off and spend the weekend with your family

 

 

Kalidas Ref: 08-013l

Hong Kong, 10-Nov-2008

Ignored Letter to the President Bush Causes $15 Trillion Blow Out

with 8 comments

The letter was received by White House through FEDEX on 25-August-2008. It was neither acted upon nor acknowledged. When the matter of utmost national importance and urgency was received at the White House, they chose to ignore. It shows how bureaucratic and unimaginative the White House officials are. When the nation was sinking, even a small life line was worth taking a chance. But Nay, George W Bush was destined to go down as the worst ever President of the United States in its history, a man who completely ruined and destroyed every fabric of America

Ref: 08-012 of 31-Oct-2008
That’s right. I had the perfect solution to the present problems facing the United States and the world. I sent a letter to the President of the United States of America, Mr. George W Bush, suggesting my complete plan to resolve the problem of not only Sub Prime crisis but also to offer the complete blue print in no uncertain terms to solve the most of the problems that you are hearing day in and out on CNBC, BBC, NBC, ABC , CBS and host of finance specific newspapers around the country and the world.

  

I also wrote that it was time for action for the President Bush, that his last 60 days of Presidency were the most important part of his career, and that he could change the face of America in just under 60 days. It was not the time for relaxation but action. I warned that if he did not take the swift action, the worse days would follow.


I also sent a copy of this letter to the Consul General of United States in Hong Kong for his information so that in case, some bureaucrat ignored the letter, he could have filled in the gap to alert the appropriate authorities. I also gave my full identity.


And the result was disastrous. Within 16 days, the worst things started happening in United States in quick succession. Trillions of dollars were lost in worst ever shake up on Wall Street and Nasdaq, $700 billions package was designed by Paulson and Bernanke who do not know even today, what are the real problems facing the United States, and they go on printing and guaranteeing the bad debts running into trillions of dollars.

 

Here is the full text of my letter (Last two pages of my profile and cover page of my new book are omitted here).

 

Tell me, If you were the President of United States of America, if you were facing the enormous problems, and you got a letter that claimed to redress all vital problems facing the country, what would you have done? Read the letter and acted, at least deliberated, or just ignored and dumped into the dustbin? Vote for it at the end of this article:

 

All Paulson and Bernanke’s Bail Out plan of US$ 700 billions were really not necessary. This plan is not working nor will work in future. It will simply give rise to massive rise in inflation that may see the interest rates climbing to 24% to 30% in less than 18 months.

 

Both Paulson and Bernanke are hell bent upon printing the dollars as way out for current massive problem. They do not know the problem at all – where is the question of looking forward to them for solution. Why Should American Tax payers bear the cost of over US$ 1.5 trillions spent so far and hand over the blank checkbook to these two guys who have run out of common sense and wielding monetary weapons in complete darkness?

 

A copy of My Letter dated 18-Aug-2008 (Received by White House on 25 Aug 2008) is reproduced below with a copy of my letter to addressed to Consul General of United States in Hong Kong.
 

Mr. George W Bush,

The President of the United States of America,
The White House , 1600 Pennsylvania Avenue NW
Washington, DC 20500 USA

Dear Mr. President,
 
  Sub Prime Resolved

The Bible for Recovery of the United States of America

I have solution for not only the sub-prime crisis, but also the most comprehensive economic and political solution for other troubles like falling dollar, rising crude and commodity prices, gold and geo-political crisis in the Middle East. So far as I know from the public knowledge, I am at this point of time, the only person in the world to have complete and speediest solution for the current range of crisis engulfing the United States.

 

First thing first. Who am I? Kalidas is a nickname – my real name is mentioned in the enclosed profile. Briefly, I am a Hindu by religion, borne in Mumbai (India), grew up for 36 years there, currently a Permanent Resident of Hong Kong for over 24 years, a full British Citizen (my sole nationality), and a friend of the United States of America. I have 40 years of combined experience in banking, as stock broker, bond trader, in capital markets, business and finance. I have clean record in all countries of my residence.

Sub Prime Resolved

Sub Prime Resolved

You stand excellent chance to make your last 90 days of Presidency the most memorable event of your political career. What could not be achieved in the past 2700 days of Presidency, would be achieved in just 90 days. Your approval rating could rise to over 90 by the time you would give up your Presidency.


The chances for success will be between 70% to 95% if you implement the suggestions with full conviction. Within next 90 days, before November 4, 2008, the United States will be up and running on all cylinders if you appreciate the solution and take the line of actions suggested.

 
Kindly do not write off the remaining 90 days as a social exercise bidding farewell to old buddies or resign to the fate of helplessness that nothing else can be done anymore. Unlike Katrina, this is a man made crisis and can be resolved by human efforts alone. Your time for action starts now.
 

Ask any member of your cabinet or even great investors. They are all searching for the two ends in highly complex intertwined ball of ropes. No one will come close within 1000 yards to the solution that I have outlined after almost 6 months of day and night efforts.

 

Let me tell you briefly how my entire work is organized in almost 260 pages.
 

Modular design…
My work consists of 18 chapters on each subject of current economic or political troubles. It is in modular design. Each chapter is independent of the other in most cases, except where some correlation exists. Each chapter contains the problem identification, its origin, extent, size and seriousness of the problem, and most importantly, the Solution that is eluding the most. The solution is accompanied separately by Action Plan, Time Line and extent of qualitative and quantitative benefits that can be derived in prescribed time frame. Nothing is left to chance. Everything is target specific. Nothing vague. The report is written in very simple language without any technical cliché – even a person of ordinary intellect can understand it very clearly.

 

Assign each Chapter/Task to concerned Cabinet member or Department for target specific actions within definite time frame. All departments are given specific leads how to proceed so that details could be worked out by them in shortest possible time.

 

No.

Chapter Contents

No. of Pages

For Notes and Comments

01

Sub  Prime  Crisis

·         Need  of  the  hour…  to  diffuse  the  financial  bomb

·         Identification,  Origin  and  the  size  of  the  problem

·         Crux  of  the  problems  to  fix  -  Foreclosure  and  Collapse  of  Derivatives

·         Suggested  Measures  to  stop  the  creation  of  further  bad  sub-prim e  loans

·         Legality  of  the  foreclosures,  and  how  the  borrowers  exploit  the  lenders.

·         Solution  for  Credit  Crisis  hurting  large  banks  and  brokers…Action  Plan

30

 

02

Reversing  Dollar  Flow

  • Full  range  of  target  specific  measures  to  reverse  the  dollar  flow      
  • There  are  two  m ore  chapters  one  has  to  read  with  -  Chapter  5,10,  14

06

 

03

Growth  &  Consumer Spending

·         Obsolete    theory  of  consumer  spending  leading  to  growth  in  GDP    

·         Spoilt  consumers  and  excessive  protectionism         

·         Consumers’  exploitation  by  Banks       

06

 

04

Using  Business   Immigration

12

 

05

US Dollar, Euro and Eurodollar

·         Understanding  complex  inter-relationship

·         How US financial system is attacked by a group of nations without even US knowing it

·         Relationship  with  Oil  prices,  how  to  cause  crash  in  oil  prices?

·         How  to  address  trillion  dollar  industry  with  ease  and  effect

·         One more  Parallel  economy and  how  to make the billions  out of it?

12

 

06

FED is not GOD

·         Excessive  reliance  on  FED  for  growth

·         Where the FED fails..?  Role of FED vs.  Treasury

·         FED Chairmanship vs.  American  Presidency

·         How FED creates unemployment?

·         Monetary Policy vs.  Fiscal  Policy

·         $  Carry  trades  in  low  interest  environment

22

 

07

Inflation  &  Growth  -  Misdirected  policies

·         Inflation, Stagflation, Growth and Expectation

·         Demand, Wage and never  recognized  Derivative induced  inflation

·         Correcting  the  policies

12

 

08

Non-inflationary  growth

·         Absurd  concept and misdirected policies as result

·         Creative  containment  of  inflationary  numbers

6

 

09

Long  Term  Interest  Rate  Policy

·         Ad  hoc  short  term  policy  on  Interest  rates  do  not  work

·         How to make LT Interest Rate policy dynamic?

·         How  to  contain  $  carry  trades  and  derivatives  with  LT  Interest  Policy

10

 

10

Humpty  Dumpty  Dollar  Down

·         How dollar drowns?

·         Dow vs. Dollar  -  before  10  years  and  now

·         Political  reasons  for  dumping  dollar

·         Political  actions  to  reverse  the  dollar  flow

8

 

11

Off shore to On shore

8

 

12

Introducing  Dynamic  Taxation

·         Americans’  flight  from  on  shore  to  off  shore.

·         Parabola  Structure  of  Taxation.

·         Current  Taxation  and  Rate  Structure  -  big  negative .

·         How  to  reward  efficiency  in  taxation  to  make  it  more  rewarding

·         How  to  increase  Corporate  tax  revenue  by  reducing  taxes

·         Dynamic  Taxation  policy  with  automatic  adjustment

·         Revising  Individuals  and  Corporate  tax  structure  with  full  tables (32 pages)

·         How US to benefit using Convertible Bonds of troubled borrowers?

·         How to reduce the tax rate and earn the billions more

·         Pro-Active  Taxation  policy

22

Plus 32 pages of Taxation schedule for Corporate and Individuals

13

Reviving  Auto  Industry

·         Funding  Auto industry to retain and increase jobs

·         Funding  Auto sector  via innovative  financing

·         Making  billions of Tax payers’ money  by helping Auto sector

·         Similar policy for Airlines as well

8

 

14

Oil Price

·         Who rockets the oil prices and how?

·         How to contain oil prices?  Relationship  between  ICE  and  NYMEX

·         Relationship  between  Oil  Prices  and  Dollar  at  various  centers

·         Comprehensive  plan  to  manage  and  control  oil  prices

14 

 

15

Where is McKenna’s Gold?

·         Does US have 8134 tons of Gold as claimed?

·         Where the Gold has disappeared? Physical holding does not mean ownership. It is only a custodial holding.

·         Strong  dollar  policy and Gold – Dollar’s downfall

·         How to rebuild real gold reserve on dynamic basis to lend  strength to $

20

 

16

Dealing  with  Islam

·         Understanding  Islam

·         Peace  with  four  “I”  -  Islam, Iraq, Iran and Israel

·         Difference between Nationalist and Terrorist

·         Complete re-thinking of policy and bringing Islam within the realm of modern era

·         Policy of engagement vs. Confrontation

·         Dealing with Palestine, Lebanon and Israel – possible Action Plan.

·         Retreating from Iraq and engaging in its development.

·         Dealing with Iran and Islam

·         Dealing with Afghanistan and Osama  Bin  Laden

·         How Islamist will surrender terrorism?

·         Ending a war on terror and starting war for peace

16

 

17

US  Should  ….itself 

(Using defense technology for peaceful purpose)

·         Facing natural disasters like flooding, tornado, wild fires using defense technology

·         Converting  killing  machines into most modern weapons for  peaceful use

·         Converting passive military technology into $300 Billions a year export industry using US Army Corp

·         Better read this article in full rather than discussing it here

12

 

18

Misc

 

 

As you can see, the entire plan is very comprehensive. Full facts, figures, data are given in simple yet effective manner. It offers solution and tells the administration what to do rather than what others criticize what should not have been done. It is more directional. Written in the first person style, it is more interactive and evocative. No more beating around the bush – straight talk.

 

If you have interest, please contact me by email. I may not be available in Hong Kong for a few days due to family wedding which will be over by 26August, 2008.. I will provide you full contact details once I see firm interest in the above proposal. I will be in USA for a few days.

 

All the proposed actions can be taken within 45 days, allowing sufficient time for deliberation and discussion. It will be understood by all within minutes.

 

Terms of Engagement
I will disclose my terms of engagement, once I see the interest. If no proposal is received, I will publish my work in the form of a book after a few months. However, in that case, the US will lose first strike advantage, and some erring nations will go scot free. The trillions of dollars inflow and income will be lost. US will never be able to recover from present economic mess in which it is. The worst days will come if no actions are taken now to address the challenge.

 

My fees will be mostly performance based, except certain minimum. It will be based on simple formula.

 

Since this is an unsolicited offer, I do not expect any reply in case there is no interest. However, those who are handling this letter are requested to at least inform the President of the contents.

 

Kalidas
Hong Kong,
18 August, 2008

 

ACTION TIME TO BUY the Stocks

with 93 comments

Rummaging through the Rubble


ACTION TIME TO BUY


Filtered Stocks – Short & Long Term

What is more Important in stock markets – ENTRY or EXIT time?
This question has been nagging the minds of all investors ever since the stock market was
invented. There is no clear answer so far, although hundreds of books have been written on
stock markets. The simple answer is as under:

EXIT Time for Bull Market; ENTRY Time for Bear Market

Now that we are in a bear market by all means, the question is whether it is right time to enter in
this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull
and when you try to sell, became a bear.

 

Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.”
Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find
something valuable available virtually free.
In investment, an Investor usually asks the following questions (some they are explicit, some
they ask within themselves)
  1. Is it right time to Buy?
  2. Will not the markets go down further?
  3. What should we buy?
  4. How long do we have to hold?
  5. How much we can possibly gain?
  6. What is the downside risk for the stock?
If above questions are answered, the investor loosens the purse and starts investing.
However, during this market collapse, especially in India, the investors have started asking the
following questions. Our comments are given immediately below in Blue.

 

1. Oh my god? How low the SENSEX will go to?

We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It
is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve
in prediction game. Further, we are going to invest into individual stocks, so why dwell too
much in the big talks like Index movement?

2. Are we finished or washed out with the market?

The market never gets finished or washed out completely. The market lives on. So use steep
correction as suitable investment opportunity

3. When will the market revive? Will it go to 21000 again?

Again, predictions game. Whether the market goes up or down, we are concerned whether
the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a
short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not
achievable in a medium term (next five years or so). The losses are so much, that the
investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has
more patience now.

4. Will the market go to 5000?

When the market was at 21,000, the brokers were talking about the index going to 50,000 to
60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will
talk about 3000. There is no end to it. To be quite honest, individual stocks do not
necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes
down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at
Rs 26.50. You therefore better worry about the stock you are going to invest in rather than
talking about markets that will lead you nowhere.

5. How much we should invest? Should we invest all now?

It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is
the principle of stock market investment. Not everything is going to zero. There are values in
the stocks when they are battered. The present opportunity is on a golden platter. So use it.
To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard
of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300.
With this amount one can buy about 10 to 20 shares of same Arvind Mill.

The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take
the inventory of items of your household that you have not used for more than 12 months.
Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in
barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap
shares. You will be able to reduce dead inventory in your home; make enough space, clean
up the excesses and got some really valuable shares, that may double or triple in less than
one or two years. Please note that when the confidence returns in the marketplace, these
stocks multiply in less than five trading sessions.

If they have come down very fast, they will climb up with equal speed. Please be practical.

6. Is it not risky to invest now?

There is a risk everywhere. Even if one is healthy, he can be in bed if he meets some
accident. When one comes out of his home or office, there is no guarantee that he may not
be hurt by someone walking on the street or sidewalk. Do not ask such questions – they are
not worth even asking, where is the question of getting the answers?

You: Great, I now understand the game. I will take reasonable risk. So pick up some stocks for
me and advise me. I am buying on two year’s horizon at least
.

Me : That’s my boy. Now I will tell you what should you do. Remember, this is a stock market
and this time it is tough. If you are not made of steel, try to become one.

How to Buy in Washed Out Market?

There are two angles. One for domestic investors and other foreign investors or NRI. Following
is the consideration that governs my approach:

  1. Strength of Rupee (for International Investors including NRI)
    a. The stocks are cheaper by 50% to 80%, and the currency is cheaper by 20%
    (from Rs 39 to Rs 50). This makes the stocks very cheap if you decide to send
    more remittances to India (and you must)
    b. India may suffer in pace, but not in aim. The growth may be subdued somewhat,
    but will pick up in 12 month
    c. Current weakness in Rupee is due to manipulation in world market by USA and
    another, sudden fall in all markets have initiated margin calls even on funds facing
    redemption pressure. This is temporary event. The Rupee will regain its strength
    soon. The relative strength of dollar is more on weaker side. In fact it could
    collapse under its own weight.
  2. Strength of Economy (to all investors)
    a. The days of US supremacy is gone, That nation is heading towards disintegration
    slowly but surely.
    b. The days of consumptive society is also gone. The days are for savers who have
    preserved the wealth.
    c. Only those countries will prosper who have larger population. China and India
    head the pack but the India is ahead in domestic based growth whereas china
    rely on export led growth.
  3. Sectoral Growth (to all investors)
    a. A growing economy needs power, infrastructure, oil and gas, transportation,
    hotels, shipping, port developments. The info tech, pharmaceuticals,
    entertainment sectors will perform better.
  4. Regional Growth
    a. There will be more trades within Asia and South East Asia. The wealth has been
    transferred to Asia, South East Asia, Middle East and Far East. Africa is now on
    the verge of expansion.
  5. Commodity Growth
    a. Steel, Cement, Auto, Agriculture, Plastic, Chemicals will outperform. While world
    may be reeling in recession, India will be on expansion mode after present turmoil
    is fully played out
    b. Oil and Gas will outperform Coal; entertainment will outperform and dominate
    service sectors. Copper, Aluminium, Zinc, Tin, Stainless Steel and Carbon Steel
    will lead the sectors. These are most attractive sectors today
    c. Finance sector will take back seat, not because of its potential contribution but
    more due to risk aversion
    d. Agriculture sector will mushroom most. Sugar, Soybean, Coffee, Corn will
    outperform other soft commodities.
  6. Growth in Housing
    a. This will be engine for growth. Home Mortgage and Home finance industy will
    prosper as the default rate will be minimum.
    b. The sytem of mortgage in India is diametrically opposite to what is found in USA.
    They are incomparable
    c. Home furnishing industry will prosper.
  7. Precious Metals and Diamond
    a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future
    currency regime in the West will be relatively gold and silver based. This will
    cause demand to outpace the supply.
    b. Growth in diamond demand depends on countries like USA, Japan, Europe and
    UK. The Japan will be major customer for diamond due to rise in Yen which will
    be perennial feature for next 7 years
  8. Banks and Financial Sector
    a. Banks will underperform especially private sector banks due to dearth of capital.
    b. Stock market will revive but still under perform.
    c.
    Debt market will prosper due to high interest rate.
    d. Insurance sector in India will be more stable than rest of the world.
    e. Much depends on Taxation policy. There is strong case for lower corporate tax
    and also personal taxation. Interest rate and CRR policy will take a back seat.
    However, these are politically dependent, so anything could happen.
  9. Growth inTextile and Garment sector
    a. They will be more domestic and Asia dependent.
    b. Garments will outperform textiles.
  10. Growth in Music and Entertainment industry.
    a. Music, TV, Video, Audio and multimedia industry will have huge growth for next
    decade.
    b. Bollywood will emerge as challenging center to Hollywood
  11. Growth in Sports industry
    a. Cricket as usual
    b. Followed by Football, Tennis and Gymnastics
    c. Sports related Advertisement industry will have maximum growth

Based on above concepts, the following is the basis of industry, sector and stock selection.

  1. Select The industry
  2. Narrow down to sectors within that industry
  3. Select companies having least debt
  4. Select Two top tier companies, One middle tier and One small cap with innovative
    technology.
  5. Select the popular companies. It is more like a fashion parade or beauty contest, where the
    most popular contestant wins.
  6. Stock selection will be on following basis:
    a. The defensive sector will under perform – like Food.
    b. The stocks that have dropped most will rise fastest.
    c. The stocks that have not fallen much (less than 30%) will under-perform.
    d. Mid Caps will outpace main Index stocks and also small caps.

What the Investors must do as preparatory steps?

  1. Avoid putting in new funds at the moment. The market is having strong negative bias.
  2. Reshuffle the portfolio for the time being. It is like raining heavy outside forcing you to stay
    home. So while you are at home, do something – clean up at least. Do not take a nap.
  3. Normally, I keep the list to 12 stocks,.Since many stocks have fallen over 80%, the list is
    expanded to 20 stocks at the maximum.
  4. Sell high PE stocks and raise the cash.
  5. Swap stocks from higher value to lower value. Never swap from lower value to higher value.
  6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or
    consolidation of shares. They may convert 10 shares into 1 share, for example.
  7. Make a recent inventory in your home. Chose the items that have not been used for last 12
    months. Sell them out and raise cash whatever the amount for buying some mid cap stocks
    that have become small caps.
  8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life
    Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used
    to buy new stocks when the market has almost stabilized or drops another 30% from current
    level. This may happen, do not be surprised.
    a. The thinking is that when the stocks rebound from very low base, they could have huge
    % returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you
    part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain
    of about 400% to 500% will more than compensate the loss of interest income.
    b. Do not go for stocks which have not fallen much. When the market recovers, these
    stocks will fall because the investors will go for stocks having fallen most.
    c. Under current environment, the stocks having moderate level of debt are more
    acceptable. Capital intensive stocks may not perform well.

Stocks in the Dock:

I normally limit the selection of stock to 12 but due to heavy fall, many stocks have fallen to great
extent. I have therefore extended the list to 20. After some time, they will be whittled down to 12
after profit taking in some of the least prioritized stocks (last 8).

I have given the following 5 stocks as selection list. There will be 15 more that will be added on
daily basis @ 5 stocks per day.

Stock

IFCI

Sector

Finance

Market

India

Symbol

IFCI.NS

CMP 08/10/28

16.90

Target ST

39

Target LT

81

Year High

121.20

Year Low

15.40

ST Hold

9 m

LT Hold

18 m

Current PE

1.88

% Down Peak

-87%

Downside

-20%

Upside

400%

PE 2009

 

Div Yield% CMP

No Div

Buy Range

12~31

Sell Range

39~81

Comments

One of the cheapest finance stocks. Net Worth turned positive after many years. Swap from higher value banks such as SBI, HDFC, BOI, BOB, and UTI. Low P/E, good growth in loan books benefit.

Stock

LIC Hsg Finance

Sector

Finance

Market

India

Symbol

LICHF.NS

CMP 08/10/28

177.75

Target ST

360

Target LT

1,020

Year High

402.90

Year Low

164

ST Hold

9m

LT Hold

24m

Current PE

3.62

% Down Peak

-56%

Downside

-10%

Upside

300%

PE 2009

2.65

Div Yield% CMP

5.61%

Buy Range

140~180

Sell Range

360~480

Comments

If one can not buy this stock, he should retire from the stock market. Current fall in prices is related to problems in Home finance in USA, and other western countries. Indian is not related at all, but the funds are getting out of any housing finance related stocks. This fear is behind the fall. This is one of the finest stocks you can own, better than even IFCI. The company has access to large funds with parent LIC whereas other institutions have to borrow at higher prices, reducing their spread. This stock is better than even HDFC. It will overtake HDFC in 3 years time.. Take out your money from deposits or PPPF and invest here. Much safer than others. I would even switch by selling HDFC into this counter. Selling HDFC will get me nearly 8.5 shares of this counter. This will outperform every other sector in Housing Finance sector Swap from SBI, BOI, BOB, LT into this counter immediately

 

Stock

Bharat Petroleum Corp Ltd.

Sector

Oil/Refin

Market

India

Symbol

BPCL.NS

CMP 08/10/28

272

Target ST

360

Target LT

785

Year High

556

Year Low

206

ST Hold

9m

LT Hold

36m

Current PE

6.21

% Down Peak

-51%

Downside

-30%

Upside

185%

PE 2009

4.53

Div Yield% CMP

1.47%

Buy Range

187~257

Sell Range

360~450

Comments

DO NOT be guided by numbers. They are erratic, following wrong accounting practice. The lower profits mainly due to pending subsidies. GOI issued 8% Bonds but they accounted it as Investment rather than income. It is not BPCL liability. The properties held by company are highly undervalued. EPS in this authors estimate using proper accounting will be well over 120 placing this stock as absolute bargain. The time is coming for lifting of subsidies that may happen after election. On 5 years horizon and expecting normal accounting, the stock trade over 2400 in 5 to 6 years. Expect fat dividend when the company starts using proper accounting. Until such time the stock may remain under pressure. Only Long term investors may touch this stock . Please note that due to improper accounting standard, the company understates profit and may therefore have more downside risk

 

Stock

Hindustan Petroleum Corp Ltd

Sector

Market

India

Symbol

HPCL.NS

CMP 08/10/28

180

Target ST

360

Target LT

1800

Year High

405

Year Low

164.10

ST Hold

9m

LT Hold

36m

Current PE

5.38

% Down Peak

-56%

Downside

20%

Upside

800%

PE 2009

4.50

Div Yield% CMP

 

Buy Range

140~187

Sell Range

360 plus

Comments

Same as BPCL, but this company is better. I would personally like to invest into lower value shares, as large cap stocks see the exodus of funds due to crisis.

 

Stock

Ambuja Cements

Sector

Cement

Market

India

Symbol

Ambujacem

CMP 08/10/28

49.50

Target ST

92

Target LT

180

Year High

161

Year Low

43

ST Hold

9m

LT Hold

36m

Current PE

5.85

% Down Peak

-70%

Downside

-20%

Upside

265%

PE 2009

4.50

Div Yield% CMP

5%

Buy Range

41~60

Sell Range

108~135

Comments

This is one of the finest stock in Cement sector. It could be privatized too at above 100 price. Even the current dividend yield is over 5% on current price, from dividend alone. Swap from ACC into this counter. After

 

Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities:

1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat
but still stay above desired support level. For instance, if Dow had fallen before 8000 and the bad
news were released then, there could be massive fall. If the market is pushed by 1000 points, and
then the bad news released, the market will remain above key level and the collapse avoided.

2. There is really some good news, but none was released.

NOTE: If you want fully formated article, please use PDF 08-011-Action Time to Buy – in the sidebar Download center. Take a print out (colour preferred) and then read it well. I will go on adding 5 stocks per day until 31/10/2008. The PDF file will be revised every time it is changed, so that you will have latest update.

This strategy holds good for any market. Just the stock name changes, The players and tools remain same.

ADDED TODAY (30-Oct-2008)

Stock

Essar Oil

Sector

Oil

Market

India

Symbol

EssarOIL

 CMP 08/10/29

76

Target ST

180

Target LT

480

Year High

360

Year Low

54

 ST Hold

9m

LT Hold

18m

Current PE

8 Est.

% Down Peak

-85%

Downside

20%

Upside

600%

PE 2009

>20 Est

Div Yield% CMP

NiL

Buy Range

61~92

Sell  Range

181~310

 Comments

This is the fastest growing stock in the Indian stock market. The company has come into production after 4 to 5 years. Its quarterly sales jumped from Rs 562 crores to Rs 9000 crores. For full year it may exceed the sales of Rs 36000 crores. This company is unique in that it is oil producer (like ONGC) and also a refiner (like BPCL, HPCL, MRPL), so its profitability will be higher than SOE Refiners and also MRPL. Its expansion plan will take hold in another 18 months. Since US does not have refining capacity, it may have to lease refiners like Essar and RPL. The potential of this company is simply huge. Yes, there were times when the Essar management wanted to privatize, but then dropped the idea. (After this author’s article on MMB). Even the management took new shares at Rs 200 plus. One may sell any share over Rs 600 and buy this share. The upside potential is simply outstanding. Buy with both hands. Risk of privatization is least now. Credit market is so tough that even the best borrowers do not have line of credit to pursue acquisitions. Do not wait – just grab it now and then buy more if it does come down. When oil prices rise, this stock benefits because it is also a producer. If Oil goes down, Essar as refiner benefits. This will become Index stock in 18 M

Stock

Essar Shipping

Sector

Shipping

Market

India

Symbol

ESSARSHIP

 CMP 08/10/29

31.90

Target ST

140

Target LT

360

Year High

252

Year Low

31.65

 ST Hold

9m

LT Hold

24m

Current PE

8.57

% Down Peak

-87%

Downside

15%

Upside

800%

PE 2009

2.5

Div Yield% CMP

NIL

Buy Range

31~43.50

Sell  Range

210~310

 Comments

This company is uniquely placed, so rise in oil prices will not affect it. It has youngest fleet and also many tankers. Since Essar Oil has come into production with expected revenue of Rs 36000 crores per year, this company will be prime beneficiary for transportation of oil – crude from middle east to India and from India to overseas. Its revenue could grow 4 fold in one year, and its profit will expand 4 times. With equity base very low, this will be the fastest rabbit on Indian stock arena. I would not be surprised, if the EPS reaches even Rs 16 to Rs 20 in less than 12 months. The stock is near 12 months low. It has some of the finest potential. Just grab it when the market opens.

Stock

India Hotels

Sector

Hotel

Market

India

Symbol

INDHOTEL

 CMP 08/10/30

45.80

Target ST

92

Target LT

180

Year High

163.80

Year Low

43

 ST Hold

9m

LT Hold

24m

Current PE

8.61

% Down Peak

-72%

Downside

15%

Upside

400%

PE 2009

6.85 Est

Div Yield% CMP

4.1%

Buy Range

39~60

Sell  Range

92~40

 Comments

Best blue chip hotel stock of Taj Group of Hotels with largest revenue base of 1600 crores. Have presence in all metro and tourist cities. Good Dividend yield of 4%, low PE and best management can make this stock highly favorite. It is perhaps life time opportunity to buy at cheap price

Stock

Taj GVK Hotel

Sector

 Hotel

Market

India

Symbol

TAJGVK

 CMP 08/10/30

44.95

Target ST

108

Target LT

160

Year High

205

Year Low

40.85

 ST Hold

9m

LT Hold

24m

Current PE

3.96

% Down Peak

-80%

Downside

18%

Upside

400%

PE 2009

3.35 Est

Div Yield% CMP

7%

Buy Range

38~45

Sell  Range

108~

 Comments

This is premier Mid Cap stock with lot of growth. Decent yield of 7% should make you think why not you withdrew bank deposits and invested here. Weak rupee helps, good management. This can shine more than its parents = Indian Hotels

Stock

Royal Orchid Hotel

Sector

Hotel

Market

India

Symbol

ROHLTD

 CMP 08/10/30

42.15

Target ST

81.

Target LT

180

Year High

174.60

Year Low

38.50

 ST Hold

9m

LT Hold

24m

Current PE

3.71

% Down Peak

-78%

Downside

15%

Upside

300%

PE 2009

3.50 Est

Div Yield% CMP

14.23%

Buy Range

35~45

Sell  Range

81~131

 Comments

One of the cheapest hotel stocks with dividend yield of 14%. -40% higher than bank deposits. Less Debt, good presence in Bangalore, Hyderabad, Pune, Mumbai (All info tech centers).Also Goa.  Weaker Rupee helps. Trading at 33% discount to Book Value. Most negative already discounted.

(ADDED 4-Nov-2008)

Stock

Hindalco

Sector

 

Market

India

Symbol

HINDALCO

 Px 08/11/04

64.40

Target ST

108

Target LT

180

Year High

202

Year Low

38

 ST Hold

9M

LT Hold

18M

Current PE

4.52

% Down Peak

-68%

Downside

40%

Upside

187%

PE 2009

6.00

Div Yield% CMP

2.88%

Buy Range

42~61

Sell  Range

108~180

 Comments

Looks very cheap stock, but it is more due to share splits that have seen the stock having face value coming down to Rs 1. At the same time, it lost the status of blue chip and reduced to penny stock. Unless the company does reverse split so as to bring the value of stock close to Rs 300, large funds buying may be restricted. Funds have sold it good time. On fundamental basis, I take the view that there would be massive inflation in less than 12 months that will push up commodity stocks very close to highest price seen recently. Weaker rupee may also help the stock in translating $ prices to rupee.

 

On individual basis the Debt level is very high. The under subscription of rights issue results in heavy selling pressure from the sponsoring Merchant Bankers. The company may have to raise capital again in difficult market. There are better metal stocks. Still good to own at this price for short term trading until fresh capital is raised later. Trade and do not hold on longer term basis. Do not take up rights issue if given again. Do not chase the stock. Buy at your leisure.

Stock

Balaji TeleFilms

Sector

Media

Market

India

Symbol

Balajitele

 Px 08/11/04

70.75

Target ST

141

Target LT

420

Year High

388

Year Low

62.75

 ST Hold

9M

LT Hold

36M

Current PE

5.52

% Down Peak

-82%

Downside

15%

Upside

600%

PE 2009

4.20 My Est

Div Yield% CMP

4.95%

Buy Range

61~108

Sell  Range

172~420

 Comments

The stock dropped sharply due to Balaji’s break off with Star who will be the biggest loser in the deal. What attract me most is that this is the only company (after MTNL) which is completely debt free and that too in industry that is normally saddled with debt. This could be the reason for the strong management response to Star. Ekta Kapoor is extremely talented lady and her brother too is shaping up well. The Kapoor clan has broad range of talents in TV serials, movie and marketing. Since I am very bullish on the Media sector, that may even compete with Hollywood head on, there could not be a better stock than Balaji Telefilm. Expect rise in dividend payment after excluding Star. Go for it.

Stock

Dish TV

Sector

Media

Market

India

Symbol

DISHTV

 Px 08/11/04

17.50

Target ST

42

Target LT

108

Year High

106.40

Year Low

11.75

 ST Hold

12m

LT Hold

36m

Current PE

Negative

% Down Peak

-84%

Downside

-30%

Upside

+500%

PE 2009

Negative

Div Yield% CMP

NIL

Buy Range

14.10~23.50

Sell  Range

42~84

 Comments

May appear a risky stock, not for widow or salary earner but for businessmen.  Extra ordinary potential for this industry. Saddled with debt but also accompanied by creative talents of Zee Tele group. The promoters do not have financial acumen though. They do not know how to and when to raise money.

The company’s growth in sales (Over Rs 400 crores – third largest in industry) is major consideration for this author to suggest this crying baby. Their attempts to raise the capital failed two times. When they were in need, they fluttered with the pricing and now they have no choice – difficult market. Still the industry in very strong growing phase that will attract overseas media companies to India.

Hollywood on declining trend whereas Bollywood on upward climb. Quality of film making, sop opera, talents, technical finesse have improved beyond imagination. Literate and skilled software are invading into entertainment industry.

Ambani’s venture with Spielberg may create new dimension or confidence for Indian entertainment industry where millions of household will forego meal but watch the TV news, Cricket and sop operas. Sports (Cricket) are another major attraction for media. Further, losses of this company are academic by way of heavy depreciation. Real cash losses are not that significant. Once this company recovers, it will be on fast track. At the moment, risk of investing is average.

India’s susceptibility to vagaries of weather that results in flood and avalanche, necessitate use of satellite technology that is also indigenously produced at fraction of the cost. If the company can enter the broadband and other internet technology with greater emphasis, it will have major growth.

Oct 28, 2008 (Ref: 08-011-Action Time to Buy) – Updated till Nov 5, 2008

Stock

Guj State Petrochem Ltd.

Sector

GAS

Market

India

Symbol

GSPL

 Px 08/11/04

29.90

Target ST

56

Target LT

81

Year High

114.45

Year Low

28.40

 ST Hold

9m

LT Hold

18m

Current PE

15.84

% Down Peak

-75%

Downside

-15%

Upside

180%

PE 2009

13

Div Yield% CMP

2%

Buy Range

23.50~36

Sell  Range

61~81

 Comments

Gas stocks are the future. GSPL is mainly involved in transportation of Gas from producers to ultimate consumers, commercial, industrial or residential.

Supply side: The Gas production will be increased substantially in India – from Bombay high to Godavari basin – that requires an efficient distribution via Pipe line. HSPL has over 1100 km pipeline at its command, and more on the way in next 12 months. It will have compounded growth of over 20% for next 2 years and then 30% for following 3 years.

Gas prices are loosely controlled, so negative effect of controlled prices on the stock is less.

On Demand side, more and more public vehicles being converted into natural gas driven (LPG/CNG), the distribution via pipeline assume supreme importance. Larger housing colonies of future will install piped gas system. This is where GSPL and Petronet come in to play vital role in distribution. There is also a possibility that neighboring Pakistan may become its important customer when the things settled down politically there. No other company is better placed than GSPL to deal with Pakistan when the demand originates from there.

As Product, the gas is self lubricant and emits almost no smoke, so it is “Green” in nature.

Financially, the company is very liquid, profitable with excellent balance sheet. Large cash holding, earning good interest on Fixed deposits. Its EPS may rise to Rs 10/shr in 5 years based on higher demand, more pipelines, higher gas prices and realizations, and fresh demand from neighboring states like Maharashtra and Rajasthan.

GSPL is still an adolescent. In 7 years it will be a very healthy adult earning substantially. This is a stock more like Provident Fund where you contribute regularly to earn large lump sum at the end of 10 to 15 years. Please note that it will not be a run away performer, but sure, steady and sound one.

SWAP

If you own the following stocks or slow movers, you may sell them to raise the cash and Buy the above stock. The idea is to enhance the potential return in short time frame. Please note that in down market, such swaps may worsen your position. However, if you are careful as well as lucky to have bought stocks near low, the SWAP will not only recover but also make handsome gain.

SELL

Insraprastha Gas (IGL), say 1000 @ 105 to realize or

GAIL (about 15%) of current holding say, 150@ 250 and

You are swapping stocks within same gas sector with a view to providing greater and faster return, retaining same sectoral advantage

OR you can sell any slow movers having higher value and SWAP them into this stock

+

+

105,000

37,500

BUY

GSPL , say  3,600 @ 29.30 from IGL proceeds or 1280 from  GAIL proceeds.

-

105,000
37,500

Kalidas, Hong Kong

India’s ON and OFF Policy

with 21 comments

In today’s uncertain world, a few countries stand out on their own, of which India is one. There is everything one can think of finding – higher education, high savings rate, less papers or derivatives, huge population, efficient stock market, several millions of rich middle class wage earners, less debt, huge savings in real wealth like Gold and Silver, classy high tech manpower, world’s best design source, above average entrepreneurs, great creative and entertaining industry, least gambling resources, and a great democracy.

And yet, this giant dinosaur has been unable to find a single genuine pace bowler for its Cricket team, enough players to win the Olympic gold medals, really creative Prime Minister, Finance Minister, and Chief Operating Officers for SEBI (equivalent of SEC), and RBI (equivalent of FED in USA) from its thriving millions of population running across the country in every street and corner, sweating, smothering, bothering and yet smiling amid all odds against its existence.
What is wrong with this country? Its culture, Nay; Collectivism, partly; education, Nay; poverty, Nay; democracy, Nay; Contentment, yeah and lack of Killing Spirit – certainly Yes. Indians are notorious for self egoism, false patriotism and above all “eternal contentment” for whatever it has. Its desire for yearning is least. “Why do we need this? It is enough. We are happy with what we have” And that sets it apart from the rest of the dynamic western world.

 

India’s Info tech Glory and Visionary Jawaharlal Nehru

Indians have the extremely bad habit of not giving the credit where it is due. Take the example of its InfoTech Industry – now on the lips of every technocrat all around the world. It’s main creator and originator is forgotten as “Cause” and the “Result” is worshipped like a demi-god.

The seeds of high end Info tech were sawn by its first and most charming Prime Minister, Jawaharlal Nehru, a great visionary. With extremely limited sources at his command in early 50s, he maneuvered to obtain the great alliance with prestigious MIT in the United States, to set up 4 finest technical institutes – Indian Institute of Technology. And in remaining 60 years, the successive governments with almost 50 times monetary and ample human resources at their command could set up only 3 such institutes. He made the technical and engineering education so cheap and affordable, that India could produce talents at the cheapest cost.

His investment by way of subsidies in education, basic industries and oil refineries returned 100 times return in recent years. What he spent in millions on IIT brought in billions of dollars in Forex through thriving Info Tech industries. Even this author got 4 degrees for just Rs 4000 or $80 in 4 years.

When the British left India in 1947, they built 9 platforms at Bombay VT railway station when India’s population stood at 300 million; whereas in next 60 years, the successive Indian governments could build only 4 platforms at Bombay’s Church gate railway station with over 1 billion population! It is said that India is always on “Auto Pilot”. No one knows how it runs – it just walks in the wilderness.

Nehru dynasty gave leadership in the form of Jawaharlal Nehru itself, then Mrs. Indira Gandhi, Rajeev Gandhi (Son of Indira Gandhi) and now Mrs. Sonia Gandhi, head of ruling Congress party, and wife of Mrs. Gandhi’s elder son Rajeev Gandhi.

Even the Kennedy dynasty nowhere stands near the Nehru dynasty. The greatest contribution that Mrs. Indira Gandhi made was the green revolution and killing of all strength of pre-1947 Pakistan into two separate nations – Pakistan and Bangladesh.

And yet, all credits are given today to the likes of BJP Leader Vajpayee, the charismatic Prime Minister who merely exploded the Nuclear Bomb (It was built only with the vision of Nehru and Mrs. Indira Gandhi), Man Mohan Singh, the Prime Minister and P Chidambaram, the Finance Minister today for doing nothing substantially positive and lots of negative.

India has come a long way since 1950. Knowledge is no longer a power of a few. However, the kind of progress expected has not been achieved by India, and in fact, it is on the verge of losing major advantage if nothing is done now.

India’s disastrous policy measures in past, its effects and how that can be reversed with ease?

India’s de facto Central Bank – Reserve Bank of India – similar to FED in USA or Bank of England in UK, is a most revered institution in India. So also, Security and Exchange Board of India known as SEBI, equivalent of SEC in other countries, and stock exchanges like Bombay Stock Exchange – BSE and National Stock Exchange (NSE). They are given the status of demi-god by the admiring and ignorant semi educated urban class in India. The result is that these institutions, with possible exception of NSE in some cases, have become monolithic and inefficient organizations, with RBI leading the pack.

The officials of these bodies do not have experience in global money market, how certain powers manipulate the word market with ease, and therefore are very dogmatic in their views. They blindly follow the theories and practices of western and eastern world. As result, the economic, monetary and social policies fell far short of desired goals in last 50 years.

They do not realize that if certain standards with reference to which their policies are tailored are not yielding desired result, the standard itself must be wrong. As result, the measures initiated to adjust the imbalance often fail. Let us see the measures that failed India:

Belief, Policy Measures, Expectations and Final Result with Causes

Actuator: Finance Ministry, Reserve Bank of India, SEBI

Policy: Exchange Rate

BELIEF & PARADOX (In Blue prints)

1. Weaker Rupee helps exports and earns FOREX

2. Domestic Industries are protected against excessive and expensive imports

3. Jobs in domestic industries are protected and also promoted

4. Foreign Debt reduces due to FOREX earnings out of exports

POLICY MEASURES: Switch ON

Weaken Rupee by all means

1. RBI: Reduce NRE deposit rates – pay them much less than domestic deposit rates (6% less)

Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of England. NRI were treated like disposable towel

2. RBI: Do not let FII to buy Rupee from the market. Let them come to RBI directly to reward them with much higher rupee rate as enticement not to go to the market.

Even if it costs national exchequer hundreds of crores of rupees

3. FM, RBI: Sterilize any rise in the market by buying back dollar against rupee

Even at the cost of higher money supply leading to inflation

4. FM, RBI: Allow Indian Businessmen to invest overseas so that they buy dollars and sell rupee to cause it weaker and weaker.

While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India but invest overseas, as though India had become one of the richest countries in the world. Even China after receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to invest overseas

5. FM, RBI: Allow Indian citizens to remit overseas US$ 100,000 without RBI approval, so that pressure on rupee is reduced by letting them sell rupee and buy dollars.

While permission was not given to individual foreign investor to invest into Indian stock market as logical step further to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas, even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads, sewerage, water filtration plants to reach every nook and corner of the country

6. SEBI, RBI: They introduced P-Note measures to scare away the foreign investors from India so that upward pressure on rupee is diminished.

7. SEBI: introduced arbitrary circuit breakers for market and individual stocks in the name of maintaining order which again scared the foreign investors who were faced with illiquidity in the invested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixed arbitrarily.

SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at any time without hindrance. Even in market crash such as now, and in January 2008, the foreign and domestic investors were not able to sell the stocks at market because there was no market.

8. FM, RBI, SEBI: prohibited short selling on selected counters to arrest the market fall

If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000 (over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?

Dogmas, False Policies and Misplaced Priorities

I have said often that if certain policies do not work with reference to standard for long time, there is something wrong with the standard itself. Such erroneous standard has to be abandoned. However, most of the policy makers and economists have been groomed in high end business schools that rely on outdated textbooks. These guys are not wise men but guys, who never worked on the front line, gained first hand experience, always sat behind the back bench, followed the books in full literary sense, and almost forgot that they too have common sense that was distributed by the God equally regardless of class, religion or nationality.

Why Rupee should be allowed to appreciate?

The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers, Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week and 365 days a year for over 60 years. Rupee was devalued from Rs 4/$ to Rs 50/$ today with no tangible result.

Currency is an Ambassador of a Nation – it has to be strong

Currency is the first sign of strength of any country. Currency is a child of the nation by which a nation is recognized, same way the parents are recognized by their own children. Ask your self – Do you want strong children or weak children? You always say my son is this; my son is that, my daughter did well here; my children became engineer, doctor or MBA who will get us decent life from their earnings.

And what the same guys are doing while in charge of the country? They want their currency Rupee weak, so that it earns less, expends more, exports undersells country’s assets, imports overpays for the good, and the external debt soars only because of depreciation of the currency. These smart guys in RBI, SEBI, Finance Ministry and Prime Minister’s office know nothing, absolutely nothing. They are monkeys imitating blindly the western world, who want your national currency weaker so that they can buy cheaper from you and keep their inflation in check.

Weaker Rupee may help Exports, what about Imports?

Oh no, it will hurt exports! Really? What about imports? Are you not overpaying for the gigantic oil bill. Are you not overpaying for debt servicing? If Rupee is at Rs 45 and foreign debt is $100 billion, the national external debt is Rs 450,000 crores. If the rupee goes to Rs 39 as it did, the national debt reduces to Rs 390,000 crores. If rupee was allowed onward journey, it would have gone to Rs 26, and in that case, national debt would have come down to Rs 260,000 crores. You therefore saved Rs 190,000 crores just by letting the Rupee getting stronger.

And I do not say that manipulate rupee to get stronger (the way US does for dollar). What I want to say is that let it find its own level. Do not intervene when there is natural tendency to get stronger. Do not sterilize its rise. The sterilization operation is antibiotic. Continued practice of sterilization will kill its natural power to grow and get stronger. It is more like a person not wanting a child uses condom or birth control pill to sterilize the fertility for over 10 years. finds difficult to have child when he wants to, because the body has become immune to its natural power to produce. Treat economy like a body, and RBI’s sterilization and SEBI’s P-Note measures like birth control pills, and you will understand complex economics in a flash.

A person in a gym uses all equipments and tools to make every part of his muscle beautifully contoured and in shape. He then takes in healthy food, without which entire body will not respond to various form of physical exercise. Consider body as economy, policy measures as various tools for exercise and Rupee as lifeline food. If the food is weak or debilitating, the whole body is destroyed. It is a job of Finance Minister to imitate that practice to make every section of the economy well contoured and strong. The currency policy should be conceived and directed as suitable to the national needs, not international or IMF demand.

How External Debt gets reduced by Stronger Rupee?

If you want to earn Rs 190,000 crores by way of FOREX earnings out of exports, and if the export margin is 10%, the exports have to be additional 1,900,000 crores, provided none of the debt going bad. Further, if rupee had gone higher, Government could have reduced the external debt by simply selling rupee, buying dollars and liquidating the debt say, $ 15 billions.

False Praise leads to Wholesale Destruction

Often the names of financial officials in the country were mentioned on the top covers of magazines like Forbes, Fortune, International Banker, IFR, IMF Review etc. Whenever their names appear on such magazines, take for granted that they are least qualified for that post. Those who do not get proper jobs in their own country lend up at world Bank and IMF, where decisions were never taken and such posts were official retirement with full pay every month. It is a warehouse of inefficient. That resume however works in India.

India is a country that believes in enormous adulation. Gods, Goddesses, Gurus, Cricketers, Hollywood actors, high court judges, politicians and officials in RBI, SEBI, NSE and BSE are all elevated to the extreme status. Gods and Goddesses never listen, Gurus always need bhakta jan to wash their feet and drink that holy water, Cricketers and Actors are easy pass time, and inefficient judges in various courts who have been caging justice for over 20 years, take 3 times vacation, larger than your own children, never deliver justice in time prompting citizens to approach for alternative judiciary of Mafias or Bhais to give them “Supari”, politicians like Advani go on blurting about building Ram Temple, instead of building mass housing for the poor Indians, and officials in RBI go on having “condom sex” with economy by sterilizing operation, and officials in SEBI go on inventing rules like P-Notes how to drive out the Foreign Investors. When they were coming, they were asking why you are coming, and when they are going, they are asking why they are leaving. What the hell do you want, you fickle minded babus?

Indians never saw Lower Oil Prices at Rs 10/ltr when Oil fell all time low to $10/brl

Due to consistent weaker rupee, the petrol prices always rose like mercury in thermometer. When the oil fell all time low to $10 per barrel or Rs 400 per 159 liters or Rs 2.33 per liter, Indian never saw petrol or diesel prices falling to Rs 10 per liter. This is what the misguided Rupee policy did for Indian consumers

Currency (Rupee) Never Remain at Same Level – like Water, it finds its own level

The currency movement is always dynamic. The sum total of entire economy is represented by currency. If it does not go down, it goes up; and if it does not go up, it goes down.

During BJP administration, Rupee was allowed to appreciate to Rs 43 from Rs 48. It continued to Rs 39 when the officials in RBI and Finance Ministry were alarmed. SEBI started talking about Rupee when it was none of its business. These are fiscal and monetary matters, not stock market that is the domain of RBI and Finance Ministry. They invented P-Note related measures that were the harbinger of downward movement of Rupee. It just dropped from Rs 39 to Rs 50 yesterday, when Indian economy was supposed to be having highest growth in the world, Forex reserve at over $300 billions, and every sector of the economy was on four cylinders.

These wise guys applied screeching brake with the result that money simply evaporated, stock markets crashed, rupee crashed, interest rates rose, inflation rose to over 13%, oil subsidies went through the roof, and many other countless collateral damage such as recession, lower home prices, higher food prices, and what not.

If Islamic punishment of stoning to death was allowed in India, the officials in finance Ministry, Reserve Bank of India and SEBI fully deserved that capital punishment. They destroyed vibrant economy; they dealt death blow to the aspirations of Indian people, they sank India into deeper external debt (by additional at least Rs 60,000 crores), they caused Oil bill to rise by Rs 16000 crores due to depreciation effect of the Rupee, they caused first time home owners life miserable by increasing their EMI by over 6% per year or Rs 3000 per month per Rs 100,000 of mortgage loan, they raised the borrowing cost of almost all business enterprises by minimum 3% , cost of energy rose by 20%, and only the life of human (Made in India) became cheaper.

Due to single most reason – Weaker Rupee

(To be continued further that will be appended here. Full article will then be converted into PDF file for download)

Kalidas, Hong Kong

Ref: 08-010 – India’s ON and OFF policy

25-Oct-2008
Note: Due to problem with the WordPress software, the article can not be properly formatted earlier. It has been withdrawn and substituted with this one. The comments associated with the previous one may not be available here, but I will try to put them if possible.

 
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