Feel vindicated in my call, but a fool to not have acted upon it - Indiainfoline

I had written about Indiainfoline a few months ago. Here is what I had written then -

The domestic stock broking business looks to be headed for days of hectic M&A activity. We may soon have a whole host of foreign companies buying out Indian companies. Things have started moving in this direction already. Take a look at some of the deals that have been struck over the past few months:

1). Sharekhan (Promoted by SSKI): Interested parties - New Atlantic Partners and IDFC.
2). Investsmartindia (Promoted by IL&FS): E*Trade.
3). Geojit Financial Services: BNP Paribas.
4). Motilal Oswal: New Vernon Private Equity Ltd and Bessemer Venture Partners.
5). Indiabulls: No single strategic investor. But there seems to be a beeline of foriegn investors for this company. They have a phenomenal 53 per cent stake in this company. See the Sept'06 shareholding pattern.

I think quite a few of these will be sold off sooner than later. Their share prices have witnessed good jump in recent times. However, among the listed broking firms, there is one company called "Indiainfoline". This company has so far remained out of the limelight. Difficult to believe that it hasn't been approached by any of the large foriegn investor yet. I think something could be cooking up here as well. My conspiracy theory is that it will be bought out by Anil Dhirubhai Ambani's new venture R Trade. Having already missed the rally in Indiabulls, IL&FS Investsmart India, Geojit; Indiainfoline is a company one should watch out for in days to come.

Today, Indiainfoline is quoting at Rs.386, up from around Rs.190 per share in October 2006. A 100% gain missed completely there :(. And, the news is that Meriyll Lynch is looking take a majority stake in the company and may also come out with an open offer to acquire a further 20 per cent stake in the company. Ofcourse, the Indiainfoline Board has come out and denied the rumours. But, like George Roberts, partner of Henry Kravis of KKR, said in the famous movie - Barbarians at the Gate - , "Rumours are just premature facts". I believe this could just be one of them!!

Whats up with Ankur Drugs?

Ankur Drugs has been on the move over the last 3-4 trading sessions, rising from around Rs.165 to Rs.206 today. The rise was well supported by high volumes. I have written about the scrip many a times in the past and had a price target of over Rs.200 per share. I had initially invested into it at Rs.92 per share. It reached my target range today. I am out of it for now. However, I noticed a few very interesting things over the last two days. There have been large bulk deals over the last two trading sessions. Some person by the name of Ashok Ruia has acquired close to 2.1 lakh shares of Ankur Drugs during this period at an avg. cost of Rs.198. Besides, there have been some buy calls on this scrip on Moneycontrol on Ankur Drugs. Is there more than what meets the eye?

Because, as far I am concerned, the FCCBs issued by Ankur Drugs are expected to dilute its equity by close to 50%, and some more will get diluted by the conversion of the warrants issued to the promoters and a group of investors a few days ago. While issuance of warrants to the promoters is a healthy sign....I am more intrigued by the coincidence of it all - 1). a sudden spurt in delivery-based volumes, 2).issuance of warrants (convertible into shares) to promoters and last but not the least 3).spurt in price at a time when mkts are looking pretty weak.

Some acquisition? or a mere smooth FCCB conversion enabler? we will soon know....

Interesting ways of valuing companies on dalal street?

I was trying to look up some numbers in the oil & gas sector and there's something that struck me. Here's the thing:

IOC
- Refining cap (42 mln)
- Mcap (Rs.55k crore)
- Value/tonne of refining capacity (Rs.13,095/tonne)

RIL
- Refining cap (33 mln)
- Mcap (Rs.198k crore)
- Value/tonne of refining capacity (Rs.60,000/tonne)

BPCL
- Refining cap (14.6 mln)
- Mcap (Rs.9,970 crore)
- Value/tonne of refining of capacity (Rs.6,830/tonne)

HPCL
- Refining cap (13 mln)
- Mcap (Rs.9,760 crore)
- Value/tonne of refining capacity (Rs.7,512/tonne)

MRPL
- Refining cap (9.69 mln)
- Mcap (Rs.7,003 crore)
- Value/tonne of refining capacity (Rs.7,226/tonne)

Reliance Petroleum
- Upcoming refining capacity (29 mln)
- Mcap (Rs.31,250 crore)
- Value/tonne of refininf capacity (Rs.10,776/tonne)

Now, the question if pure refining companies like MRPL and Reliance Petroleum are trading at valuations in the range of Rs.7,000-10,000 per tonne, then why are companies such as BPCL and HPCL trading at a lower end of this range? I mean where is the value for their petro-products distribution & marketing network, which by the way controls close to 25-30% of India's total oil marketing network???

I think they are worth investing at this point of time. Value Stocks in the true sense, I think!!

India, a reality check - an article in the International Herald Tribune

Came across an interesting article on India in the International Herald Tribune. link.

The author of the article raises some important points:

• There are other reasons to worry now about the India hype. It is all very well for Indians to express racial pride over the success of Mittal in gaining control of European Arcelor to become the world's biggest steelmaker. But why, it might be asked, has the Indian-born, London-dwelling Lakshmi Mittal invested so little in India itself? And where would India be if its markets were as open as those of Europe, an openness which enabled Mittal to buy Arcelor?

• The Tata Group's acquisition of the Anglo-Dutch steel group Corus raises other concerns. Maybe there are synergies and Tata can acquire technology. But, again, one may ask why Tata, a 100- year-old family conglomerate, is investing so heavily outside India when India offers the greatest growth potential of any major steel market. Its current steel output of 44 million tons is one-tenth that of China.

• Enthusiasm about India's global role as a manufacturer, given its supply of labor and vast domestic market, is fine in theory, but it must be tempered by the reality of high tariffs and a huge manufacturing trade deficit. India is more dependent than ever on exports of services and raw materials, and on workers' remittances.

Add to the above, a whole host of companies coming out with IPOs or issuing FCCBs (which will be converted into equity as some time in the future). Dilution of equity is happening with rapid pace even as companies hope to counter the same with higher profits. Well, someone please ask Indian sugar companies, how does it feel when there is no commensurate earnings growth on a diluted equity base? Will corporate India walk down a similar path?

Ankur Drugs update: Promoters subscribe to shares @ 175

The Board of Ankur Drugs today issued 2,625,400 warrants @ Rs.175 on a preferential basis to the promoters, a set of strategic investors & business associates. These warrants can be converted into an equal number of shares over the next 18 months. The fact that promoters are subscribing to the shares at a price which is higher than the current market price (Rs.162.5 per share) augurs well for the stock.

Besides, the promoter - Purnandu Jain - remains an active buyer of Ankur Drugs' shares in the secondary market. According to the announcements released by the BSE, Mr.Jain has bought around 36,000 shares over the last one month. In addition to the two lakh shares he purchased over the last 12 months. See my previous blog entry on Ankur Drugs.

Sensex an underperformer over the last 15 years!

My boss pointed me to some interesting facts yesterday, one of them is the fact that the Sensex which has been rocking in the past 2-3 yrs, has been an underperformer vis-a-vis debt over the last decade and a half. Here's the computation,

Int. rates during early nineties were close to being somewhere in the range of 12-14% per annum. So effectively, money put into a FD would double in 5-6 years (rule of 72). They stayed in this range for almost the entire nineties. So effectively, if one were to invest Rs.100,000 at the beginning of the nineties, the investment would have grown to:

Rs.200,000 by mid-nineties and close to Rs.350,000 by the end of nineties. Thereafter, interest rates have averaged at around close 7-8 per annum, so Rs.350,000 would have become something like Rs.500,000.

Returns - 5 times over the original investment, or a compounded avg. of close to 10.6% per annum.

Now, in early nineties, the Sensex was quoting at close to 3,000 levels. Today, the same is around 14,000. This comes to pretty much the same, ie around 10 per cent per annum, though when it comes to compounding, even a 50 basis point difference is quite significant.

Interesting?

Btwn, I noticed a few things over the last few days:

• SBI is currently offering interest rates of close to 10.2% per annum (compounded quarterly or semi-annually, i think) for FDs over a period of three years, and

• Force Motors is offering interest rates of close to 12 per cent per annum for a FD of a similar tenure.

I find this very interesting. Indian markets are currently quoting (in terms of p/e ratio) at around 20 times trailing, ie. an earnings yield (inverse of p/e ratio) of 5%.....less than half being offered on FDs by companies such as those mentioned above.

This means, Corporate India is quoting at levels where its earnings yield a mere 5 per cent per annum as compared to banks or some companies which are offering interest rates of close to 10 per cent. Both I think cannot co-exist for long. So what will move first? Interest rates (down?) or corporate india's valuations (down?).