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Archive for the ‘What was that Again?’ Category

12 year lock-in? Is IRDA really this weird?

Posted by fairval on November 6, 2017

IRDA seems to live in its own world. It seems it is considering putting a 12 year lockin for PE investments in insurance space.

Irda may ask PE companies for 12-year lock-in

Some of the statements in this article (it quotes an unnamed IRDA official) are truly bizarre.
Check this —

  • Private equity is one of the most unstable form of capital looking for appreciation and exit, so a lock-in period is required. I thought it was one of the most stable.
  • This is to ensure that their capital is invested for a longer tenure to support the long-term growth of insurance companies and safeguard policyholders’ interest as these funds are known to look for quick appreciation and exit. And how does one exit: There has to be a buyer, right? If the buyer is willing to pay a certain price, is IRDA saying the next buyer is a fool? IRDA needs to protect the next buyer from getting duped by the PE fund? 

One can understand say a 5 year lockin. 12 year pre-determined lockin – IRDA is living in another world.

The stated reason is of course to protect the ‘policyholder’. Wish they would show more concern about reducing commissions and insidious sales practices.



Posted in BFSI, What was that Again? | Tagged: | Leave a Comment »

Spurious RTI data – 40% vacancy in Mum-Ahd trains

Posted by fairval on November 1, 2017

Today one amazing bit of data has come out, it seems out of an RTI query. Says a news item –

Modi government obviously did not do its homework on the Rs 1 lakh crore project.

According to an RTI query filed by Mumbai activist Anil Galgali on seat occupancy, in the past one quarter alone, the Western Railway is facing staggering losses worth Rs 30 crore in the Mumbai-Ahmedabad sector – this translates to a loss of around Rs 10 crore per month. The WR revealed that in the past three months, 40 percent seats have been vacant on the Mumbai-Ahmedabad route while 44 per cent seats were left unoccupied in the Ahmedabad-Mumbai route.

This was widely reported in all papers, and was today being debated on NDTV. As can be expected, the slant was – So how can a bullet train come on this route?

Amazed at the stupidity of it all – this data is SO OBVIOUSLY incorrect. It appears no one in the media or their expert commentators travel in Indian trains anymore. 40% vacancy? What are they smoking?

I travel on this route often, and I know from personal experience, it is very hard to get tickets if not booked in advance. If this data was correct, I should be able to book a ticket say 4 hours in advance.

So I checked just now. According to the RTI data, there are 32 trains (IRCTC lists 30); of which, quite a few are only for this route (as in, Ahmedabad is the last stop). Some of these –

  • Shatabdi Express
  • Ahmedabad Passenger (twice a day)
  • Suryanagari Express
  • Karnavati Express
  • ADI Double decker
  • Ahmedabad Duronto

Total seats as per RTI data are around 8000 per day

I checked availability for tomorrow. Only ONE out of 30 trains has any tickets. Many are not even accepting booking for Waiting List ticket. The only train which has tickets – 179 – is ADI Double Decker. This again I have noticed from personal experience. This does have tickets often till the last moment. Why so? I guess 2 reasons – it has lot of tickets to offer, being a double decker – one bogie has ~140 tickets, this single train must have 2000 tickets to offer; also the seats are extremely uncomfortable, so maybe people don’t like this train.

But then, 179 out of 8000; that’s 2%. And this is not season. In Diwali season, there was no tickets for atleast a 20 day period. For tomorrow (2nd November), even the twice a day Ahmedabad Passenger has no tickets. And it takes 15 hours 45 minutes, a lifetime!! In contrast, fast trains like Shatabdi or Duronto take 6 hours 20 minutes.

So where the hell does the 40% vacancy come from? And in which Indian train sector is that even possible? Let alone Mumbai Ahmedabad.

Posted in Data, What was that Again? | Tagged: , , , , , , , , | Leave a Comment »

Are Ruias India’s most selfless & misunderstood entrepreneurs?

Posted by fairval on October 22, 2016

A seminal deal happened this week: one of the largest ever acquisitions of an Indian company, and as the full page ads mentioned – India’s largest ever FDI. The Ruias sold Essar Oil to a consortium led by Russian oil major Rosneft, at an enterprise value of USD 10.9B (there was separate money involved for associated group companies like Vadinar Port).

With this deal, the group expects debt burden to reduce by 50%. Overall debt at group level could be as high as USD20B. This suggests most of the sale value would go towards debt servicing.

The impact of the deal was instantly felt on the banking system. ICICI Bank, India’s largest private sector bank, which had a large exposure to the Essar group, jumped 7% on the day this deal was announced, and has risen since. At the time of writing, the stock is up 13% from the pre-deal close. In market cap terms, this is a USD 2.8B gain.

All this is good for the banking system, the rupee and the Indian economy. It becomes even better when you consider that the promoters Ruias have pretty much made no money whatsoever in setting up and running Essar Oil.

You read it right. For a company spanning around 2 decades, it appears the Ruias may have made zilch for all their family effort, plus the risk they had taken in terms of corporate, and maybe personal guarantees against bank loans.

Since we don’t have full information, this is what we are assuming – almost entire proceeds will go towards reducing debt. This means the only money Ruias may have made would be from dividend income, and salaries for family personnel.

On this count, the situation appears to be like this: in terms of data since FY02, Essar Oil hadn’t paid any dividend (as per equity database Ace Analyzer). The database does not show data before this. As per FY15 annual report, the only family member directly involved with Essar Oil was Prashant Ruia, who was chairman of the company. His remuneration for FY15 was Rs 43 lakh (Rs 4.3million). This is negligible for a company with a revenue of almost USD15B.

In other words, since the last 15 years or so, Ruias may have earned nothing directly out of Essar Oil. Assuming other than the principal amount of their investment in Essar Oil, they use the rest of the deal money to pay bankers, that’s 15 years of no return for an incredible effort of setting up India’s 2nd largest refinery, and one which pretty complex configuration. It wasn’t just a refinery; Essar Oil has 2500 retail outlets, India’s largest oil retail network in the private sector.

Contrast this with what the other big private sector player in India in oil refining – Mukesh Ambani – makes from his company Reliance Industries. Mr Ambani earned dividend of Rs 1400+ crore in FY16. In the last 5 years, he has earned dividend income of almost USD1B. He also draws a salary, which he has capped at Rs 15 crore per year for the last 8 years. This is besides his wealth from shares of RIL, which is about USD24B.

That is more like it. Unless you are making huge amounts of money, why would you create such a large business?

Unless some of the data above is wrong, this leads to a natural question – just why did the Ruais do it? Take such a huge financial risk, and then make no money.

Group chairman Shashi Ruia said in the press release “It is a historic day for Essar. The transaction demonstrates our unique ability to build world-class assets”. Note the stress on creating history, and doing something world class. Prashant Ruia’s quote also emphasized the group’s ability to create benchmarks. He said “The deals we have done have led to an FDI infusion of more than $30 billion into India”

I guess all this is not easy for a simple mind like mine to understand. Can the urge to create national or global benchmarks be so strong, that one can labour for decades for no financial reward? I don’t have it, many of us middle class Indians, who can’t look beyond their next salary cheque may not have it either.

And on top of it, the paradox is: we, who want to work for money, are poor or middle class; and those who are working for no visible money are not. Maybe this is one of those god’s mysterious ways of dispensing justice and allocating wealth.

In sum, I think it is time the media and analysts revised their opinion about Essar group, and recognize their selfless deeds for what they are worth.


PS: I guess this transaction and the 2 decade history of Essar Oil deserves a case study by Harvard Business School – what say?

Posted in Energy, Trends, What was that Again? | Tagged: , , , , , , , , | Leave a Comment »

Is it a real business, or is it a Po*#x*

Posted by fairval on October 13, 2016

As part of our transaction advisory work, we do considerable work in pharma / healthcare space. We also have our own angel platform which invests solely in pharma / heatlhcare startups. In this, we have several HNIs who are business owners from the same space – pharma / healthcare.

In other words, we regularly meet and talk to people operating in this space. Often these meetings come about when we are representing a client from healthcare industry, and on its behalf are talking to either a fund or HNI for funding.

In the last one month, in 3 separate meetings, we got asked roughly the same thing (about our clients) – is it a real business, or is it a P*#$@+?  No reflection on the clients, but is there something not quite right with this company they want to compare it with? From being the toast of the startup world, why are several people seemingly bad mouthing it?

We have no idea of whats going on with this company, but lets see if this becomes one of these standard questions one must ask a startup – are you a real business, or a P*#$@+?

Posted in Angel Investing, PE/VC, Uncategorized, What was that Again? | Tagged: , | Leave a Comment »

The streets are filled with idiots, and Volkswagen cars

Posted by fairval on December 20, 2015

Janhavi Gadkar got her license back, reported media. So potentially one more id***on the road. I have found the whole JG episode beyond comprehension. Here is a lawyer (should bloody well know the law better than others), who is 35 years old (not a juvenile), and a woman (sounds sexist, but aren’t women supposed to be more law abiding?).

So this senior corporate lawyer from Reliance gets drunk with the CFO of Reliance on a Friday night and mows down a taxi at reportedly 120 kmph and kills 2 people. The car she is driving is an Audi, so nothing happens to JG. Great endorsement for safety features on an Audi, but 2 persons died.

Volkswagen seems to be wanting to put its emission controversy behind it, given the recent spate of ads. Earlier, VW was found to have put in a system of rigging emission data on some its cars. Why? Because the goal of making fast cars isn’t quite in sync with having low emissions.

The common thread between JG and VW: Speed and fast cars. Car makers all over the world, and Germany in particular, are highly focussed on speed. German cars are the epitome of luxury car industry. And what do they stand for – speed and safety. The later though is a necessary evil – if you are making a fast monster, you have to put in features to ensure that the idiot driving it doesn’t kill herself or himself (the other party be damned).

The 2 problems with the car industry – cars kill people and cars cause pollution – are a direct result of the focus on speed. This is where regulators need to step in. Several things can be done: Put in regulation to cap the top speed of cars at 80-100kmph; or put a cap on engine sizes. Noise pollution is another big evil – that should be tackled by putting in metered horns – so say 1 min of honking costs say Rs 100. To honk, you need to ‘charge’ the horn. That should cut down noise, or atleast generate revenue for the government.

Car makers will still want to sell luxury cars – but that can be via other means. Let them innovate on other features like design, entertainment, connectivity or just bling. And they can give schemes like ‘lifetime honking free’.

PS: One issue I have missed reading in the media – is JG still employed in Reliance? The CFO certainly is.

Posted in Auto, What was that Again? | Tagged: , , | Leave a Comment »

Flipkart is the 39th most valuable company in India

Posted by fairval on November 24, 2014

The latest round of fund guzzling at Flipkart seems to have been done at a valuation of $10B. That makes it amongst the top 40 most valuable companies in India.

The following is the list of most valued companies as per market cap (all listed cos here, safe to assume there no company in the unlisted space with $10 B valuation). So Flipkart is being valued almost the same as Dr Reddy, Hero Motor, GAIL, Nestle India. In the consumer space, it is getting more valuation than companies like Dabur, Godrej Consumer, Marico, Colgate etc.

Flipkart’s valuations are 2x more than Titan, the largest brick and mortar retailing company!


India's Most Valuable Companies

India’s Most Valuable Companies


Posted in E-commerce, Valuation, What was that Again? | Tagged: , , , , , , , , | Leave a Comment »

A new example of analyst creativity

Posted by fairval on February 15, 2013

What share prices move sharply, either up or down, it does create a problem for the analyst if there is a reco and target price out. Adani Ports  seems to created some problems recently, as we found from this report. The stock rose 20% in 2 weeks.

This leading foreign broker seems to have been caught in a bind. They appeared to have have used DCF for their earlier target price of Rs 149. Now this was set on 27 Jan 2013, when the closing market price was Rs 130.60. I haven’t read this report, so dont know if the sale of Abbot Coal was covered in it or not (unlikely). The company announced on Jan 28, that it would divest almost the entire stake in Australia’s Abbot Point Coal Terminal to the Adani family. The market seems to have liked this, and the stock jumped 20% in less than 2 weeks, reaching Rs 156 on Feb 8.

As you well know, it is a little hard to justify tinkering around with DCF in 8-10 days. So either you put a Sell, or neutral, or you have to figure out a way to increase the target price, and retain you buy call. This analyst has gone for the latter, with what one must admit, some real creative flexibility.


Reiterate Buy — Despite the stock’s sharp rise (+20% in ~2 weeks) after the 28 Jan 2013 announcement of a sale of Abbot Point to the Adani Family, we believe
there is scope for further rerating based on the underlying business momentum, potential deleveraging and forecast improvements in RoE and RoCE

Increasing target price to Rs183 from Rs149 — We now use a blend of 50% DCF value (Rs151) and 50% EV/EBITDA value (Rs216), from 100% DCF earlier. In our view, the 50-50% mix of DCF and EV/EBITDA better captures the long-term nature of the port’s cash flow and near-term strong earnings growth. The 15x EV/EBITDA we use for our TP is supported by a 19% EBITDA CAGR over FY13-15E and 11% RoCE, and is at a 30% discount to the historical average.

Posted in Anal(yst) Humour, Valuation, What was that Again? | Tagged: , , , | 2 Comments »

Target price using PEG greater than 1

Posted by fairval on November 3, 2012

I guess when a stock commands high P/E, every once in a while comes a time when it becomes hard to explain the valuation. This is from a report on Titan by a foreign broker. They have used a PEG of 1.2 to arrive at a target price! There is always a first time.

We roll forward our target price time frame to Sep’13 with a revised TP of Rs244 (earlier Mar’13 TP of Rs205). Our PT is based on PEG of 1.2x implying 30x FY13 P/E and 24x FY14 P/E. Our target PEG ratio is at the higher end of the 1.0-1.2x PEG ratio we use to value regional retail companies because of Titan’s better return and growth profile.

Posted in Valuation, What was that Again? | Tagged: , , , | 2 Comments »

Deccan Chronicle mess: Satyam all over again

Posted by fairval on July 27, 2012

Just how exactly does a net cash positive company default? It came to light a few days ago that Deccan Chronicle had defaulted. The events have seemed to gather speed over the last 2 days. On Thursday, the company announced its MD had quit. The stock was down almost 20% today. In July, it has lost over 50%.

Till July’12, Deccan had a long term debt rating of AA from CARE. On July 2, CARE issued a release saying Deccan had missed a payment on an NCD.

If you see its last declared balance sheet (Sep’11), it has a debt of Rs 298 crore, and cash and bank balance of Rs 398 crore. In other words, its net debt is zero and it had a cash balance on the top of it. Even CARE’s statement says: As per the company’s submission, it had outstanding cash balance/ FD amounted to Rs.372 crore as on December 31, 2011 and gross cash accruals for the last quarter (1st January to 31st March 2012) of FY12 amounted to Rs.20 crore. Despite aforementioned liquidity, the company has defaulted on its debt obligations. The company has not offered any explanation regarding the same.

So why did it default?

The most like explanation is the numbers are fudged. And it is not that this was not known.

The auditor seems to be some local entity called C B Mouli & Associates, so not a Big 4 / 5. And the rating agency was CARE. Both did not seem to know.

But did anyone know about the fudge? Some did. As early as 2009 or so, a friend of mine who is the equities head of an MNC broker, had called me check his hypothesis on Deccan. He said his analysis showed Deccan was overstating sales of its new editions, for ex, the one in Chennai. He sought my help to check this (I was in Times group at the time). I did an internal check, and I got the same feedback – Deccan was fudging numbers. The sales numbers they were claiming for some editions were simply not possible.

With all this, it seems many others, including CARE, didn’t catch it. This appears to be a case like Satyam.

Posted in Corporate Governance, Media and entertainment, What was that Again? | 1 Comment »

Only 1 in 10 analysts got it right on Infy?

Posted by fairval on July 13, 2012

Only 7 of the 70+ analysts tracking Infy had a Sell or Underperform reco as on July’12.


A Barclay’s India Strat report dated 9 July actually had Infy in top 10 recommendations!

Posted in Technology, The Science of Investing, What was that Again? | 1 Comment »