Shakti Met Dor

Here is another dilemma that I face now. I had invested in Shakti Met-dor about a month back. The company looked undervalued, some people were beginning to notice and write about it but the charts were not indicating anything stellar to me – at least then. I was more happy to cream off 7 – 8% in about a month’s time and get out. I am sitting on an upside of 26% now. Of course, my digging around on the net had made me aware of a much larger upside that was possible on this stock. So I was waiting for the market to discover the hidden value in it – perhaps around the time of it’s quarterly results declaration? I also thought it a good omen to have dumped some money on the stock of a company which is domiciled in the same city where I am working currently.

The company fabricates doors and windows. That’s it. My money is hinging on these humble pieces of building fitout equipment. Doors and windows are not cool enough, I guess. Maybe that’s why the company has never really been able to command a good enough valuation despite doing pretty well for itself. Some time back it recently upped its manfucturing capacity and no one seemed to have noticed back then. The additional capacity seems to have come on board and the additional widgets are now contributing to the bottom line. The coffers seem to be filling up and now people are starting to see it on their screens due to the falling P/E ratio.

What’s my dillemma? When to sell. Again. The same problem.

And what’s the catch? The management – or so it seems. They must have realised that since the market cares two hoots about them, it was time they got out of the party where they were not invited. They now want to delist. The promoters own around 55% and it may seem that they have a long way to go (SEBI requires 90% ownership for promoters before they can slink away). But there’s more to it – we need to open our doors of perception wider. The problem is that, in true Pareto style, just about 100 shareholders seem to own around 90% of the stock under issue. I am afraid that if the management is able to corner these 100, then I’m done for. Who knows what relation exists between these 100 and the management? I hope they do not locate me – but that seems difficult as I work just 7 kms from their head office. The website of the company is nothing great. I am sure some creative webmaster can create quite a few interesting themes with doors and windows opening and closing on their website. They do not have an investor relations page or section but that’s all undestandable since the management has said that the reason for seeking an exit from the listed secondary market is the heavy burden of listing and exchange fees that the company has to bear. If that is such a heavy expense then why would they ever want to pay a few thousands to a web designer to spruce up their website? But despite the frugal website, they have managed to slip in an extract about their company culture (Career With Us >> Our Culture) which should help us investors:

“Openness: We like to be ethical, fair and forthright in all our endeavors; openness not just in the sharing of knowledge across the organization, but also in terms of respecting the feedback given by our people.”

I hope they feel the same about their investors? Or are some investors more investors per share of holding than others?

Despite such nobility, there is some speculation that the promoters have been quietly ferreting away bite sized chunks of shares away from the market ever since 1998 and do not appear to have been open and honest about it. That sounds like fraud to me. Stock analyst Mudar Pathreya said all this and also a bit more in his interview to CNBC-TV18 on 27Jul’10. He says that the company should be worth more than Rs. 500/share and advises shareholders to hold on.

Where is SEBI when it is needed the most? I need you, SEBI for I need to make money. I remember Prof. A, who during my first year of management studies had remonstrated very vigorously and animatedly:

“SEBI should be plucked out and thrown into the Arabian Sea”.

 Serious, risk averse dyed-in-the-wool kind of value investors will stay away and look the other way. But I am greedy. Greed is good. Greed is good.

Pathways of fate

Two roads converged in the woods and I took the one less travelled. And that does not seem to have made any difference! 🙂 🙂 🙂

In fact even Robert Frost, whose poem “The Road Less Travelled”, admitted that if he were to retrace his path and were to come upon that same fork, he was not sure if would make the same choice yet again.

Some poems, stories, books stay with you. Floating around in your subconscious. This is one such poem that I remember from my school days. I cannot recite the entire poem in one go, but I remember the theme and the imagery that it had left in my mind back then. “The Pied Piper of Hamelyn”, “The Highwayman”, “Hiawatha’s Wooing”, “Satpura ke Ghane Jungle“, “Jhansi ki Rani” are some of the others.

Speaking of personal paths, I had drawn the locus of my movements on Earth sometime back. In my much younger days, decisions of my elders moved me around on the paths that I was takinng. There was no questioning and full trust. And i have had a whale of a time. Later on, as I entered the last few years of my teens, the path that I took have largely been my doing – with useful help and advise from others. So if I should regret, its on me. If I should celebrate, its on me.

Here’s how my domestic path looks like. These are the cities that I have been to, spent time working and/or visiting. From all these places I have learnt something. Some good things, some bad. Transit cities are not shown. So, for example if my journey takes me to Xanadu en route to El Dorado, I would not show the former on the map.

And below is how my international footprint looks like. A lot to cover, a lot to learn. When a group of us friends had decided to take a snowed in break in Auli (Uttaranchal) we had met a guy who had been to 120 countries. One of us had wondered aloud if those many countries even existed in the first place. With the collapse of the Soviet Union and the formation of the various stans, I am sure this guy would’ve been thrilled. More to add to his travelogue. His Fodors was expectedly, very frayed.

So often we hear ourselves or our friends, associates fret and muse about choices and chances missed. About milk spilt. BTW, I don’t feel bad about any milk that’s spilled – because A) AMUL is not listed and B) I hate milk more than I hate luv storys. Coming back to the sombre mood, many of us love to regret, retrace and draw out imaginary probabilistic paths of alternate realities. Good fuel to feed the fire.

Does the Buddhist Baggio regret not hitting the target during the penalty shoot out against Brazil in the 1994 FIFA World Cup? Columbian Andres Escobar was not even allowed to be around to regret his faux pas of scoring an own goal against the USA in the same tournament. He was shot. And then some personal anecdotes that I have lent a sympathetic ear to:

“If only I had listened to my inner voice and pursued architecture from Sir. J.J. School of Art, I’d have been so much more successful. But my father wanted me to be an engineer”.


Kaash hum kuch aur padh lete bachpan mein. Hum bhi private gaadi ke driver hote, parking attendant nahi. Driver hone ke liye kabhi kabhi angrezi aani chahiye“. (I wish I could have studied. I would also be a chauffeur today instead of a parking lot attendant. Sometimes, knowledge of English is required of a chauffeur).


“If only I had waited for the birth of my son. I would not have to give up a promising career and become a housewife”.

Charles Dickens gives us young ‘uns some hope when he says that “Regrets are the natural property of grey hairs”. But then there is a perplexing (to me) remark from Henry David Thoreau telling us that “To regret deeply is to live afresh”.


Here are two paintings – which one is regret and which one is sorrow?




Sorrow and regret seem to be two sides of the same coin. Maybe nothing cleaves the two. But regret is not the same as guilt. See the painting alongside – is it regret or sorrow or guilt?



One lesson that I have learnt from my investment related readings is this: When life gives you lemons, don’t make lemonade. Just cut your lemons (i.e. losses) and run.

Uncommonwealth games

Wish I could ask this question to someone in the Finance Ministry: Why the fuck should I pay all these taxes and bear the indirect heat of the GST (at least in the short term) if this is how your team is going to use up the money? Given that method of GST implementation makes the Union Finance Minister all the more powerful, these questions will surface.

I am referring to the collosal waste that is being planned in Delhi in the name of Commonwealth Games. The latest issue of India Today carries a story on the issue – and that is just the beginning. Many more voices of dissent will start surfacing as the date comes closer.

Maybe we should call it Cogresswealth Games?

The total expenditure of the Games is now estimated to be Rs. 40,000 crores! That’s roughly 3.8% of our total external debt. Crazy.

Shera is the mascot of the Games this time around. Thats a tiger. In the last 9 years the tiger population in the country has dropped from 3,600 to 1,400. Just 1,400 – less than the number of employees in a mid sized Indian company. I wonder what even a sum that’s as little as 5% of Rs. 40,000 crore could do for our tigers.

We will have to face a lot of humiliation and embarassment at the world stage for this seemingly idiotic decision to host the Commonwealth Games here. It will be a good test to really see how thick skinned we are as a nation; how moribund the opposition (BJP and its allies really are) is and how the ruling Govenment manages to grin and justify – as the days roll by. And I wonder what is Rahul Gandhi doing? I think these type of events are a good platform for him to get into and be known even more. Good test of organisational skills and gives international exposure too. Not that he needs them – but I think young and younger Indians would be more impressed by performance than lineage.

The Chief Minister of Delhi, Ms. Sheila Dixit (or Mr. Suresh Kalmadi) had boasted that the Commonwealth Games are a small thing for India and that we would like to see the Olympics come to India. Olympics, my foot. I have full trust and faith in the International community and the Olympics organising committee to not lose their sanity. We seem to have lost our way in planning for these Games. I doubt if I will be alive to see the day when the Olympics kick off in India. Any hopes surely seem to have been dashed by the manner in which these games have been organised. Despite spending those crazy sum of monies, almost every stadium, every activity seems to be plagued with delays. The recent rains in Delhi have effectively washed away any hopes that a few may have been harbouring. Here are some examples:

  • Siri Fort Badminton complex – wooden floor has buckled due to water seepage. It is here that Saina is expected to deliver us our gold in badminton. The entire floor will have to relaid. Super.
  • Yamuna Sports complex – this is brand new. Environmentalists are crying hoarse that this will damage the fragile Yamuna ecosystem but the Supreme Court quashed their petitions are ordered the fun and games to resume. Resume they did, but have been abruptly halted since the false ceiling has fully caved in and the ensuing waterlogging that. Divine intervention?
  • Dr. S.P. Mukherjee Swimming complex – (this is my favourite) When it was being inaugurated, a waterpipe burst and it sprayed water on the people present during the function. But no one seems to have been bothered, since why would you not expect to get wet when visiting a swimming pool? 😐
  • The cycling velodrome – We built one. Then some grim international governing body came in and said that we need timber cycling tracks. The velodrome was reconstructed and now its been flooded. cool.
  • Talkatora Boxing Stadium – Virender Kumar will have to first learn to swim then think of the winners’ podium for there is/was more than a foot deep of water surrounding the stadium
  • etc etc etc

Then there are the delays in the Games Village. 34 village towers need to be prepared to house the teams and their entourages but only 6 of them seem to have seen the light of the day. ITDC is now constructing these (see box) and shortage of manpower is being cited as reason for the delay. All my non-Indian readers, I really don’t understand what you mean when you seem to be overwhelmed by the sheer number of people in India! Speaking of the foreign hand and foreigners, I feel that the organisation of these Games is a brilliant case study to demonstrate the continuing Indian fascination for anything foreign. The underlying lack of self confidence in our society and polity seems to be coming out here.

I smell a rat here. Kickbacks? Favourites being granted contracts? Subversion of the bidding processes? I do not know how many medals will come to India but I do not think that the Opposition parties will let the ruling Congress and its allies get off so easily on this. As I said earlier, this drama is yet to enfold and will be a good test to see if there is any life left at all in the BJP.

The balloon will cost Rs. 40 crores. If it gets used in the closing ceremony as well then the bill will increase further. The helium for this ridiculously expensive balloon is coming from Russia and the management of the balloon is going to be carried out by an Italian company called K-Events. For all you know, maybe the balloon is coming in from China. I don’t know if you know that the Adidas Jabulanis (footballs used in the recently concluded FIFA World Cup) had an Indian connection – the latex for the bladders came from Kerala. But why should we use anything that’s Indian? It’s only imported maal for us. Will the balloon have anything Indian at all? Maybe the ropes used to hoist it up? That’ll be the great Indian rope trick. And yes, the money of course is as Indian as it can be!

Another painful action item is the removal of filth, beggars and animals from Delhi’s streets. Garbage is fine; animals may be fine; but beggars are NOT. They are citizens of India. You can’t just pick them up and dump them somewhere else. This sounds like what they used to do with people during the emergency. Not that I was around to understand anything during that Congress induced madness, but read Vikram Seth’s tragic, A Fine Balance to get one view of that era. Already some terrorist groups have seem to have become active. Some 10 – 15 kilograms of RDX have been seized. China banned vehicles from some roads in Beijing for the Olympics. That move is good according to me, as long as it does not severely inconvenience the lives of the locals. Having been in Delhi, I know that cordoning off any major road there will cause havoc. Add a bit of rain. And the famous Delhi spirit of agitation. You get a perfect recipe for disaster. A local NGO seems to have estimated the number of beggars in Delhi to be around 120,000 and the number of stray dogs at around 250,000. The cleanup operation of these beggars and dogs is expected to cost around USD 65 million. That’s around 325 crores of INR! Fantastic.

Delhi is trying to spruce up its image. Or being made to. Union Home Minister, Mr. P. Chidambaram has apparently asked Delhiites to change their “behavioural patterns”and adopt manners befitting of residents of “an international city”. What crap. What someone needs to tell these panjandrums is that yes, clothes do make a man. But for that, the man needs to fit into the clothes. He needs to be trim, tucked in and tight. Delhi is our capital and an awesome city in terms of infrastructure (as compared to the rest of India!). But it is not, and cannot be what these people are forcing it to be. Only hours and hours of sweating it out in the gym can tone your muscles and make you trim. There is pain involved in that. And love. And determination. The Congress party is feeding steriods to Delhi.

And you and I and the father of the pretty girl next door are going to foot the bill.

Sugar me baby

Sugar me baby, NOT.

The problem with too much of a fixation on charts is that we sometimes tend to ignore their non causality. Past patterns may not repeat. Just because a stock is at its 52 week low/high does not automatically mean that it will start rising/falling. In fact, quite the opposite. Momentum surfers say that, if accompanied by strong volumes a rising tide is likely to rise further and a sinking ship is bound to plunge deeper. Trouble is that we amateurs tend to sell too early (“too much of greed is not good”) or hold on to falling lines sliding further. That is what I had in mind when I said (here and here) that its not important when you buy – when you sell is what determines your worth. Another category of misadventures has to do with those with blood on their hands as they attempt to catch falling knives. Many look at a 6m or 1yr chart, and buy into a stock if they see that its fallen quite sharply. These are  people hopping onto a slide midway in the hope that the slide will magically metamorphise into a roller coaster and take them up. While they lose lesser than the ones who have been around at the top before the slide, it hits the ego more. Guys who have been losing money on a losing investment for some time seem have turned accepting to the fact that they have hit a rough patch and bravely ignore  further losses. Guys who get in fresh in the middle of a drop have to brace themselves for the stock market equivalent of a tight slap.

If there’s some sudden, extraneous shock (the PIIGs dominoing themselves to bankruptcy, terrorist strikes, political events, my turning up to work in pink  corduroys, et al) then it can help to get in during sudden drops. Else, it’s not so simple. Better bet would be good stocks that have done nothing and might be on the verge of a breakout. See the chart of Reliance Industries Limited (RIL), for instance – there has been a reconcilation between the brothers, global energy stocks are firming up, entry into communications and power…but the RIL stock has been sleeping.

On the other hand, one sector that has definitely turned quite bitter of late is sugar. Take a look at the chart alongside – while the NIFTY has done a handsome 23%, the sugar stocks have fallen from 12% – 32% during the past 12 months. EID Parry has trumped the NIFTY though to return a nice 46%, but then only 65% of EID Parry is sugar. Now, I do remember a colleague of mine buying into one such sugar producer and losing quite a bit in the bargain. Not a sweet deal at all. Same has been the case with Airtel. A couple of people I know bought into the leading telco, drawn by its image and brand name hoping for a quick rebound. But the rebound has not come about and they are still ringing up losing numbers.

Food is not good here in India. The stomach turns to see so many people going hungry only to realise that mountains of rice are allowed to rot in the Food Corporation of India’s (FCI) godowns.  The Indus Valley civilization taught us to build granaries but somewhere down the line we forgot how to manage them. Its pointless to blame Mr. Sharad Pawar since he is, by his own admission, quite overworked. I am not quite sure what role the food ministry mandarins have played in the local sugar mandis, but the the picture looks bleak for these cane crushers.

Sugarcane is quite a popular crop back there in my village. Its yield per acre is high since these grasses can be planted quite close to each other. Its almost impossible to venture deeper into the growth since the stems are quite stubborn and the rough leaves do scratch and irritate the skin. Wild boars gorge themselves on the canes and I remember my cousins/uncle/labourers taking turns watching over the farm under the starry skies.  Later in the morning it was always a pleasure to watch a village belle walking around, with unkempt hair digging her incisors and tearing into the outer skin of a sugarcane stump with a beautiful ferocity that can now be matched with the savage manner in which some investors have been mauled into losses over these stocks.

Sometime back there was a shortage of cane since there were many takers. There was talk of ethanol doping of fuel, the liquor companies where in attendance too, the gur producers and of course the sugar refiners. As a kid, I remember seeing serpentine queues of bullock carts laden with sugarcane waiting to offload their ware at the local sugarcane factory. I am not sure if you know but sugarcane needs to be processed immediately upon harvesting, else the sugar content declines rapidly. But a year or so back, we heard of millers coming directly down to the farms to collect the produce. This is a cyclical stock and once you see such un-natural behaviour (home pickup), it is almost sure that the good times are about to turn.

The heady demand drove up cane prices and the sugar producers had to stock up on inventory procured at very high costs. They are still holding on to these stocks. Since sugar prices are coming down now, the sugar companies have no option but to eat this cost. Further, since the Indian monsoon seems to be ok ok this year, there will be fresh produce coming into the sugar mandis later this year. Which will cause prices to fall even more. Also, there is a wide acceptance of the fact that the RBI might increase domestic interest rates. I do not know offhand, how much debt is carried by the sugar producers, but if they indeed do – then its one more nail into the coffin. Domestic brokerages have thumbed the sector down – many are predicting a 30% – 50% drop in quarterly profits.

Only deregulation of the sector can spike up the sector. But one wonders why talk of deregulation always surfaces when the sector underperforms. It is again a digital event, not in one’s control – and with Mr. Sharad Pawar overwhelmed with work, this is one coin flip which we’d rather ignore. These are cyclical stocks – roller coasters, ferris wheels, etc. Lets have them increase their P/Es first and then look at investing in them. Depressed earnings of cyclicals reduce the denominator of the P/E ratios and therefore they become attractive when their P/Es are high.

Saina’s Interim Success

While I’m shuttling around the city of the nizams, searching for a place to stay there have been so many times that I’ve looked up to see posters felicitating Saina Nehwal for her feat of being one short of one. I guess most of us would have read or heard or seen somewhere about Saina getting to world number 2 (with 64,791.26 points) behind Wang Yihan of China.

China = 1, India = 2. Looks good.

If you have been following her comments, you’d know that she has taken measured steps and always achieved the incremental targets that she and her coach, P. Gopichand have set for her. Last year she said,

“For the next year, my target is to break into the top 5 and also make my mark in the All England, World Championships and Super Series events.”

She’s gotten there. At least the ranking part. And now she says,

“It will be difficult to hold on to the ranking but I hope to continue my hard work and win more titles and become the number one player soon.”

But there is a concern. Is this her peak? Or will she head higher. I am sure no one will be answer that – not even Saina, but we’ve seen her ‘homophone-nym’, i.e Sania fizzle out. There so much more to aim for – the coming Olympic gold notwithstanding. But the best part is that she seems to be carrying a very mature head on her 20 yr old shoulder. In a recent interview she said:

“I have been training very hard and with more hard work I am sure to reach the top. I want to stay focused at my game to become number one. It is important for me to make my country proud.”

I particularly noted the phrase “It is important for me to….”. I think she has been coached very well by her parents and Gopichand. I’m some 14-15 summers elder to her and I cannot find any immature volley in her statements. I’m sure fans and observers much elder to me would also feel the same.  There have been quite a lot of financial hardships behind this interim success of hers. Imagine having to spend ~50% of your monthly income on the training of your kid. That’s what her parents did. And when that was not enough, they withdrew from their accumulated Provident Fund savings. When asked why she did not take up tennis, she said:

“No. My first love is badminton. I’m often asked why I didn’t try tennis. Training in tennis is too expensive compared to badminton”

Wow. I like the approach to money. As of now, at least. Sonia made friends with Sania, hope she leaves Saina alone. The former friendly overtures were obvisouly intended to gain Muslim votes but what kind of votes can Saina bring? Jat votes from Haryana? Well, I don’t know for she appears to have stayed in Hyderabad most of her time. But things can change. Currently her ask would be in the range of 20 – 40 lakhs per ad. It can surely climb up to a crore per ad if she bags the numero uno position. I hope money won’t corrupt her game. She’s been promised 101 gold coins if she wins us the World Championship in Paris this August. Then there are the Commonwealth Games and the Asian Games due this year as well. Lets see. Gopichand had turned down endoresment offers from the cola companies citing moral resposibilities of sportsmen since they are role models. Maybe he did not want young Indians to take to colas or maybe the money offered was not good or maybe there was the political fear given the drama that kicked out the cola giants out of India and gave us our Thums Ups. Saina’s priorities seem to be clear:

“Todays generation wants to drink everything. I am also one of them. Gopi sir took a very brave decision because he believes if we do anything, the public follows. I don’t see it that way that if I drink, others will also start drinking it”

Very logical and all fine. I also agree with her observation that today’s generation wants to “drink everything”. But I only wish Saina to drink success and more success. Money or no money. It’s all understandable considering that her winnings have been very paltry till a few years back and most of her money was spent in telephone bills since she had to pick up the hundreds of congratulatory calls on her cellphone while being on international roaming! Its not funny really.

Track her please, whether you understand badminton or not. This kid, whose caller tune (till some time back at least) used to a peppy Punjabi number, is the purest and totaly deserving world class sports performance to come out from this land of over 1 billion. How I wish India is a world beater in a team game as well – cricket does NOT count as a team game at all.

ctrl, SHIFT, delete

I am squeezing in a quick obligatory post since The Third I opens (i.e. has new posts) every 3rd day….

Shifted to Hyderabad – yesterday. New work. New chapter. At first glance, the city seems good….but to me, personally, the Maximum City is just that – max. Always.

Will be staying alone, so cooking, cleaning, etc get added to my resume! I do not have unfettered access to the internet to start off with, therefore this pathetic looking first post from a new city. Hope to get regular quickly. Got to go….need to find something to eat. Then to find someplace to stay.

BTW, have not even as much glanced at whats happened to the markets since Monday. Unless the floor has given in I think I’m good. It’s a virtue to develop – especially if you are deeply long equities. To develop the ability to breathe normally if one is shut off from the tickers for an extended period of time. And yet sleep blissfully. Learning that money should be driven by you and not the other way around.


I’m dead tired and have no energy anywhere within me to keep my eyes open….tomorrow when I wake up, we will have a new world champion nation. Paul the Octopus says that the cup is heading towards Spain. I used the randbetween() function and it says Netherlands. My randbetween() function, correctly predicted the semi-final outcomes – just like Paul the O.

But now I might lose the plot. For Paul the O is never wrong, is he? Is it a he? How do you know an Octopus he from an Octopus she? w”ink”. Good luck Spain. And good luck Oranje. And good luck Paul.

Tell me, honestly: Why are you watching the final today?

  • To see history being made. (I majored in history, you see)
  •  Good sport. Important match.
  • time pass
  • Everybody else is watching. I’m a guy…so what if my favourite country is out…I like the sport.

I think for many, the real zing of the tournament died some days ago. I think I am correct. No?

Godrej Industries Limited

Once while coming to work in an auto-rickshaw, I had the great fortune of being driven by an extremely chatty driver. The good man had loads of original theories on how to solve India’s population problem. Uttar Pradesh (UP) in particular. I’m sure you must be aware of the standard chestnut where applicants to consulting or other weird jobs are called to estimate the number of some random widgets in a given geographical area. Well, this rickshaw driver sure can make it through any of these interviews. If only he was a bit more suave and lettered. In a span of a few kilometers, with wheels turning at not more than 30kmph, he picked out the population of present day UP, logically assumed the number of “useless” people above 50 years and under 10 years of age, and logically devised a plan to eliminate them etc etc. While we turned an oft turned turn, he got pretty excited on seeing the Godrej premises in Vikhroli (a suburb in Mumbai) and started telling me that the Godrejs are actually from UP. I was hooked though I really was not too interested in the ansectoral origins of the Godrejs. Rick man confidently asserted that the real name of Godrej (which of the Godrejs’, I dared not ask 🙂 ) was actually some XXX Thakur. I forget the first name that he mentioned but it sounded pretty lyrical. According to him, this XXX Thakur came to Mumbai penniless and worked very hard in the city of opportunities. To muck in well and to sound important, he took on the title of Godrej. “What does the name mean?”, I had asked him keeping a wary eye on the meter for my office was near. He did not know. We’d turned off the main road and gotten inside the office premises and this guy got further excited upon noticing a railway line that passes behind the building. According to him, the Godrejs wanted to build a railway station bang between Vikhroli and Ghatkopar (neighbouring suburb to Vikhroli) but could not since they would not bribe – or something to that effect. It was a very interesting trip (some 7 – 8 months ago) – before this there was also some talk about a lady doctor who used to hire his vehicle daily and a young woman who used to work in the doctor’s clinic, but that story is out of context and a bit crass to mention. But please do pick the brains of auto rickshaw drivers of Mumbai (or any Indian city for that matter) – they are quite a chatty lot and they work quite hard.

So that was it – but I think that there are two points here about the Godrej Group that seem true. First is regarding corporate governance and citizenship. It’s one of the most respected business groups in the land and for good reason. I really don’t know (nor care) if the story regarding the railway station between Ghatkopar and Vikhroli is true or not. The second point is that Godrej & Boyce has given a massive, Massive, MASSIVE chunk of land in Vikhroli on a 99 year lease to Godrej Industries Limited who have further given the developmental rights to Godrej Properties Ltd. (IPOed in Jan ’10). Now, in 1985 there was a company called Sea Breeze Construction owned by Mohan Khubchand Thakur and Desiree Mohan Thakur which came into the Godrej fold in 1989. So that’s how this yarn must’ve been spun!

Anyway, maybe the rickshaw drivers of India deserve a seperate post for themselves but the real purpose of this entry is to record one of the things that has been occupying my mind for fair measure: Godrej Industries Limited as an investment opportunity. I had some excess cash recently and wanted some parking place for it. Fixed income is not really me – bonds/debentures and National Savings Certificates, Company fixed deposits et al.  I bought some amount of gold (in the form of units of an Exchange Traded Gold Fund) but I still wanted some occupation for my idle funds. Finally, I picked up Godrej Industries as one of my core holdings. Equity is where I usually am and equity is where I usually will be for the next decade or so.

While there are short term predictions by various “experts” that the share price will reach 184 – 190, this is one purchase of mine where I haven’t stared at the charts too much. For the following reasons:

  • Its a holding company. Usually, in India – holding companies always trade at a significant discount to their net asset values. If someone does a sum of parts of all the asset values of a holding company, compares the sum with the current market cap and therefore presents a “deep value” kind of spiel, please do not give in. Caveat Emptor. Discounts of 40% – 50% are also not unknown.
  • Market is almost always right. On the very rare occasions where it is not, the effect can be seen quite tellingly on the charts. Moreover, well known, highly capitalised and liquid counters are covered very well by the stock analyst community. Information tends to me less assymmetric (though in India, you never know!) – which means that the chances of hitting a home run based on some insider info is rare. Moreover, we all must feel some security and trust in a name that has been synonymous with locks in India.
  • But I read somewhere that the market does not or does not want to see too far out. It’s view is limited to 6 – 9 months. For good measure. The market participants which ring in the most volumes – who are not you or I – need to keep an eye on churning their capital. Most of it borrowed.

So why look at charts excessively, if its sticky money that you want to deploy? And as I said in a previous post – it’s not when you buy that matters. It’s your selling point that makes all the difference.

Not that I looked at anything else, for that matter. 😐

It gives us a diversified play – property, consumer goods, agrovet, chemicals, etc. The “etc.” is not an after thought – there are indeed other small diversified business units. For example, going back to my autorickshaw trips – earlier I used to wonder as to why Geometric Software’s office is in Godrej’s property (same locality as the venue of the opening narrative) – but there was no motivation to find out – recently (as a result of reading up on Godrej Industries) realised it’s Godrej connection. Godrej Industries owns 100% of Godrej Chemicals, 75.2% in Godrej Agrovet, 69.4% in Godrej Properties, 23.4% in Godrej Consumer Products, 43.4% in GHL. Price discovery seems full (maybe even a tad high – who really knows what discount to its NAV is ideal?) – but to me it looks to be a steady compounder over 4 – 5 years. Godrej Properties came out with an interesting concept – of real estate developers not necessarily having to own the land parcels on which they build. The company also announced plans of increasing their focus on low income housing. But the jewel in the crown seems to be the Vikhroli land. All this is known since ages and factored into the price – but the market is sometimes myopic. So maybe the game is on.

At first glance, the PE also looks high – but companies that are turning around and turning black – usually have high PEs which fall back in line as the earnings catch up.

My notes on this are quite long and there’s really no point in going further. Maybe I will restrict writing about Godrej Industries once a quarter. Two last points

  1. I really like shopping at Godrej’s Nature’s Basket. Mostly in Mumbai, a couple in Delhi and Bangalore. One Mumbai outlet is bang below my home. Till date, if I have ever cooked anything – the ingredients have been purchased at my local Nature’s Basket outlet. Will post pics of my cooking disasters later.
  2. 4.5 acres of land in Mulund (another suburb in Mumbai) recently changed hands at ~200 crores.

Mirror, Mirror on the Wall…

Some Asian women have cause to crinkle up their pretty noses. For the trusted mirror has turned out to be one heck of a fairweather friend. What is causing these cracks to appear? Well, it’s the fact that their menfolk are now asking the same question! We naturally assume the name Snow White to be belonging to the sex that’s conventionally and in literature referred to as the fairer sex. Not anymore. And it’s not some bunch of really white people living in the poles of this planet who are causing this paradigm to shift. It’s a tropical thing. The title of this post could very have been “Papa don’t Bleach”, but nothing like a fairy tale beginning to the end note that fairness creams are creeping into locker rooms. So that’s all in this post – still read on if you must. If you a guy, read ahead only if your mirror isn’t cracked and if you are a lady, read on to size up your new competition!

The craze to become fairer is catching on fast in certain parts of the world and cosmetic marketers have been busy biting their fair share of the male pancake.  I read somewhere that Indian men (some of them) as also their Japanese and Korean counterparts are squeezing fairness cream tubes in a collective frenzy. Japanese and Korean as well? I am not exaggerating, but to be fair I think I am getting too old and there’s an ever widening generation gap. Check out this video from YouTube which represents a random pick out of a bunch of home videos made by young strapping Indian men extolling the virtues of fairness creams. There are other such amateur flicks as well. If you are so inclined…

The company that played Pied Piper to legions of our sub-continent rats was Emami. Not great rats, small rats, lean rats, brawny rats as per the first line describing the rodent diversity of Hamelin. But more like the second: brown rats, black rats, grey rats and tawny rats. All following the modern Indian male dream of becoming fairer. In the early 2000s, Emami Industries carried out a survey based on a gender bender premise. The survey results must have come out on expected lines, for in 2005, Emami got our brothers and nephews and uncles out of the closet when “Fair and Handsome” was launched. This was followed by Fair and Lovely Menz Acitve by Hindustan Unilever. Lux’s 75 year old female bastion had to fall as the King Khan forcibly took that position as well when he took the plunge – into a bathtub filled with rose petals and the women receeding into the background. I think they were needed in the picture to make it look hetero. Emami’s contemporary ad during that bashful time was all about a guy sneaking into a girls’ hostel to steal a tube of fairness cream. He is caught and chastised by his friend who advises him to hoist his sail only when the wind is fair. Stealing into and from the dames’ dorm was no fair play. Our hero (ha ha ha) is advised to go and get his own tube of fairness goo. Finally, in an interview with NDTV, the Khan laid all speculation to rest when he declared that he was neither fair nor handsome. Rich and smart – oh yes, but those options were not given I guess. The print ads (and even the later television ones) posed this seemingly rhetorical question: “Hey man, are you using lipstick?” Followed by a revealing riposte: “Then why are you using fairness cream for females?”

I can very well see where this is going: “Hey man, are you wearing skirts? Then why are you using lipgloss meant for women?” yeeesh. A very disturbing (to me) survey got published by Gillete (in 2004, I think I read) which concluded that the average Indian male spent 20 minutes in front of the mirror as compared to 18 minutes for Indian women. I can live with that given that guys usually do not carry compacts and that shaving must be consuming a largish chunk of that 20 minutes. But I wouldn’t want to be in King Gillete’s camp repeating the survey on today’s Gen X, Y, XY, Z….whatever. Times have really changed and it seems that callous people like me are still in the dark. So as usual, I trawled a quick trawl on the net to catch up and get a fair crack of the whip. I eavesdropped:

To a poser regarding which is the best fairness cream for men on an internet discussion board:

“(a woman says) My husband uses Fair and Lovely Men’s Active and he says that it is effective”

“(a man says) For 1 month use Melacare by Ajanta (at night during sleep). Use Melalight by Nicholas – at day timing after 15 minutes. Use Photoban sunscreen (Note: do not expose yourself to the Sun by using this sunscreen. wait for 1/2 hours then go outside no problem). After one month please do not use these cream. Then use  1 Melaglow by Nicholas at Night and daytime use Photoban sunscreen. For better result use Bright Night (at night time (on alternate days)) and wash it after 1/2 hours and use Melaglow. thats it you will get fairer skin”

I rest my case. BTW, I was wondering who is this Nicholas by Night fellow? If he uses his own medicine he must be glowing like a firefly in the night, no?

Whatever happened to tall, dark and the handsome (TDH)? It’s a western concept. At one level, it seems to be a case of the serpent chasing its own tail – Asians want to be whiter while the Westerners keep flocking to tanning stations to become TDH. Therefore here in Asia, TDH seems to have gotten changed to  fair and handsome! Cutural cleft or a flaky fad? Culturally, fair skin seems to be associated with positive notions of class, lifestlye and beauty. In India, the upper priestly castes (Brahmins) were given the task of studing the scriptures while the lower castes toiled under the hot searing sun. I don’t think this has got to do with the English fascination that Indians still have – I think it’s got to do with the Aryans and/or the Turks and Muslims that invaded the dark land and established control. Color easily identified the servant from the master. Since in Hindu mythology, the gods were dark. Rama & Krishna – i.e. Vishnu were dark and so was Shiva. Check out the brilliant comic post on the brilliant blog Fly, You Fools on this phenomenon. I’ve lifted the image on the right from there. 

Companies have cashed in to this phenomenon. Recova, Garnier, Avon (VIP Fairness Cream), Fair Ever, Shahnaaz Hussain’s Fair One, Nivea’s Whitening Moisturizer & Multi-White Whitening Facial Foam, Vaseline are some of the brands and companies active in this industry which was @ 25% of Rs. 800 crores (men’s products pack in only a quarter of the Indian fairness pancake yet) but the slice of the manly pie is growing @ 20% per annum over the last 4 – 5 years (according to ORG – MARG). There was some news of even Wipro planning to enter the mens’ grooming market. Actually their FMCG unit (Santoor et al) – but some “soft”ware this must be! Even Clarins and Shiseido are offering their wares to Indian men. Thank God, the’ve left the kids out of this for now – else you’d have had a very wholesome family experience shopping at the Mac cosmetics store in a mall near you. Despite the fact that some of the confusing ads  – like Unilever’s logically puzling promise of “Gorepan se Kahin jyada saaf gorapan” – I like these companies, they are making their shareholders richer – whether some of them want to be fairer as well, is besides the point. I’ve myself creamed off a bit from the Emami counter in the past…I am strictly referring to the moolah here, not the loofah.

But a reality check is in order. It’s a myth that fairness creams can make you fair. Skin whitening creams are effective only if your pigment (which gives your skin the colour which your parents gave you) is in the epidermis – i.e. if your beauty is skin deep. If it unfortunately is not, then this alabaster ambition will remain an albatross. Thus, fairness creams can help remove a tan or discoloration in the top layer of the skin – they cannot make a dark person fair. And speaking of inheritance, if you cross a dark person with a fairer one, the resulting offspring is statistically more likely to be dark. This is simply because nature seems to make a better choice – and unfortunately does not look at ads appearing on television.

License to Bank

The Finance Minister during his Budget speech for the year 2010-’11 had promised new issuances of banking licenses to private sector players and Non Banking Financial Companies (NBFCs). Which really seems to have lighted up hopes and share tickers in anticipation of the grant. It could very well be a grand party, but the RBI promptly stepped in on the back of this announcement (post the Budget ’11 speech and the subsequent soundbytes) declaring that all the norms of due diligence would be strictly adhered to and that a few more screws would be tightened. We all now await the screws. I have a feeling that the apex bank may not be too keen to dole out banking licenses to corporate houses and might toy with upping the net worth criteria (currently Rs. 300 crores). The policy announcement regarding these eligibility norms are now awaited – expected shortly.

I think such prudence is called for, whatever be its reason. The Indian banking sector has come out relatively unscatched from the global banking turmoil partly because of the fact that it’s still small in size in comparision and closed (to the outside world of free capital flows). Seeking a widening of base by inducting new players into the fold seems to be the right thing to do at this point, but will more of the same spread the roots? One of the most important functions that banks serve is to lower the cost of capital available for economic activity. They can do this since they have access to low cost funds – the interest that banks need to pay on current accounts and savings accounts (CASA) is lower that what an institution would have to bear if it were to raise the money from other sources. This therefore lowers the hurdle rate that the economic deployment of such funds should earn.  That explains, in part, what has got the NBFCs and the private financial institutions all excited. But apart from that there are other parameters which also might get considered by the RBI – those of geographical coverage and reach into the poorer sections of the society. I later pick on two institutions (towards the end of the post) which I feel are good candidates, each covering one of these two objectives with one of them also being a prime trading call from my perspective today.

But some history first: RBI seems not to be too inclined towards this policy and looks like it has had to toe the line cast by the Finance Ministry. The last time that this was done was in the early ’90s. In fact, no new Indian bank  has been set up since the advent of liberalisation in 1993. Some of the NBFCs that were allowed to get converted into banks were Yes Bank, Kotak Mahindra Finance Limited and 20th Century Finance. While Kotak diversified into full service banking services, 20th Century Finance became Centurion Bank and was eventually taken over by a bunch of private equity investors only to finally land in the lap of HDFC Bank. HDFC Bank itself started life in the early ’90s and along with Axis Bank (formerly UTI Bank) has become a very successful private Indian bank. Then there was the case of UBS that had to wait for nearly 3 years before getting its banking license from the RBI. The matter had to do with disclosure norms and UBS being a Swiss Bank (perceived to be stolidly protecting of its customers’ interests and assets) may not have been too comfortable disclosing certain information about its customers, including Hasan Ali Khan, the Pune based stud farm owner. Standard Chartered Bank was not allowed to sell off its Mutual Funds business to the UBS Securities. SEBI had barred UBS Securities from issuing offshore derivative instruments for one year.  Was this a tactic to delay, we know not, but for sure what comes out is that the Indian banking scene is tempting enough for global players, burnt from the sub-prime arson, to ignore. Recently, the Credit Suisse group received the green signal to start core banking activities. In December of last year, the RBI finally accorded its assent to convert the Orissa State Cooperative Bank into a full fledged bank. It had to wait for 43 years till it became eligible to sit on the high table. Interestly, of the 31 state co-operative banks, only 15 have managed to secure banking lincenses. The deadline for them expires in 2012.

Given that backdrop, lets look at the names published in the media regarding the current hopefuls: Reliance Capital, Bajaj Auto Finance, Mahindra & Mahindra Finance, L&T Finance, IFCI, Indiabulls, Religare, Aditya Birla Financial Services, SKS Microfinance et al. The CEO and MD of IDFC has ruled out his company from applying. The news certainly seems to have set the shares of some of these companies on fire – with a promise of more to come.

There are two companies that I want to mention. First being SKS Microfinance, which has submitted its (draft?) Red Herring Prospectus (RHP) for its IPO that is soon due. I guess it should also be keen to apply for banking license. While I don’t know what happens in such cases – i.e. when the objects of business change drastically enough to warrant a re-look at the financials, prospects etc, then does the RHP have to be pulled back and re-submitted? While there may be an ethical debate regarding SKS Microfinance and the threat of defaults on micro-lending activity might be higher, the logic that such companies can reach the poorer sections of the society and introduce banking to them is impeccable. The fact that N.R. Narayana Murthy’s Venture Capital (VC) fund Catamaran Investment Pvt. Ltd. may also dip its toe will definitely make people eye the IPO.  Is the Bangladesh based Grameen Bank a full fledged commercial bank? Need to check, but to borrow a line from my previous “Hot Pani Puri” post: Micro sized sales units sold at low prices but in large numbers is the essence of India. But I do not apply for IPOs so no show there for me.

The second company being IFCI. It has been playing quite a tango with the Government so far and seems to be a prime candidate for receiving a banking license this time around – solely for that reason alone. The Government had wanted to divest its stake in IFCI and had made an announcement in early 2007 but the front running joint bid from Sterlite Industries & Morgan Stanley got stopped in its tracks since the Government would not come clean on what it proposed to do regarding the conversion of institutional debt (that IFCI held on its books). If this was to be converted to equity, then it would obvisouly be less attractive to the winning party. So the party was called off. The Finance Minister (Chidambaram) must have smarted privately and had promised to make amends in the future. Given that the banking licenses are now to be handed out, interest in IFCI has peaked and the stock has moved up well. IFCI had earlier made an attempt to make itself into a bank, but that earlier attempt had failed. All others (ICICI, UTI, IDBI, HDFC) went ahead while IFCI was left out. But It looks likely to pass muster this time. What will happen if it becomes a bank? Its cost of capital will come down improving its profitability and new avenues of business will open up. It would be fair to compare it with the valuation ratios of other banks and expect the market to crank up its valuation of IFCI to match these levels.

For the year that ended Mar, 2010, the equity base is Rs. 738 crores and its net worth is Rs. 3,152 crores. Given the face value of Rs 10 per share this gives a book value of (3,152/73.8) = Rs. 42.7 per share. The Current Market Price (CMP) is Rs. 56.75 (before opening bell on 5th July, 2010) giving us a P/BV ratio of 1.32. The PAT for the previous financial year was around Rs 671 crores giving us an earning of 671/73.8 = Rs. 8.55 per share. This implies a trailing 12 month price to earnings multiple of (56.75/8.55) = 6.64. Lets compare that to the number that other banks are reporting:

Incidentally, the reason I’ve highlighted Karur Vysya Bank in red is because that was a trading call I’d entered into at Rs. 475 on 27May’10. Translates to a 25% return in 39 calendar days. The reason I’m digressing is because I am now faced with a decision on whether to hold or sell. Which will be the subject of one of my future posts. When to buy is not the important thing, when to sell is the most critical piece. What do you think? Should I take the money and run?

Now, coming back to IFCI, its logical to expect the share to jump up to a 10x earnings multiple if it becomes a bank and increase its P/BV ratio by 50% to bring it somewhere in the middle of the table. Therefore, lets watch it up to Rs 70 per share giving a return of 23% or so (hopefully). I’m getting in given the above logic, however will be ready with an appropriate stop loss should something spook the banking license party.

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