Friday, December 11, 2015

The enchanting Sirens and their preys in IPL

Sirens are seductive female creatures in Greek mythology who lured nearby sailors with their enchanting music and voices to shipwreck on the rocky coast of their island.  The sirens are probably best known for their part in the Odyssey where their song lured sailors to their death.  Odysseus ordered his crew to plug their ears with wax (on the advice of Circe) so as not to be lured by the Sirens' song.  In another story from Greek myth, the story of the Argonauts, Orpheus sang sweetly enough to keep the men from succumbing to the Sirens.

There were either two or three Sirens, who were the daughters of the sea god Phorcys or the river god Achelous.  The Seirenes were depicted as birds with either the heads, or the entire upper bodies of women.  In mosaic art they were depicted with just bird legs.

The IPL in many ways is proving to be the new Sirens for the people associated with it.  The IPL was conceived by Lalit Modi, the then IPL commissioner and vice president of BCCI.  The commercial success of the IPL and Modi’s total control over the league had made him a superhero in India and the world of cricket.  In 2010, it was Modi who oversaw the bidding process and creation for the creation of 2 new teams in the IPL.  Sahara won the Pune franchise whereas Kochi was won by a consortium of investors.  A Twitter entry by Modi declaring the stakeholders of the Kochi IPL Team allegedly breaching confidentiality agreements led to the resignation of the then Indian Minister of State for External Affairs, Dr. Shashi Tharoor.  Modi was then suspended as Chairman and Commissioner of the IPL in April 2010.  The sirens had their first victims.

On September 19, 2011, the BCCI announced that the Kochi Tuskers Kerala IPL franchise was terminated for breaching its terms of agreement.  This meant that the 2011 IPL season was the only season in which the Kochi team participated.

Vijay Mallya, in early 2008, paid in excess of $100 million to buy the Bangalore franchise.  At that point, his businesses were roaring and his net worth was in excess of $1.2 billion.  His liquor businesses were riding high and his Kingfisher Airlines was the only 5 star airlines in the Indian skies and was showing promises.  Today, 7 years later, the king of good times, is facing the worst times ever and is down to his knickers (just like the models in his Kingfisher calendar), has lost control over his flagship companies USL and United Breweries.  He has been declared “willful defaulters” by the banks.  The sirens had their biggest catch.

Mukesh Ambani, Asia’s second richest person in 2008 with a $43 billion fortune, paid $112 million for the Mumbai franchise of IPL.  Today Ambani’s net worth has more than halved though he still remains the second richest Asian.  Reliance Industries is no longer the darling of the Indian stock markets and is having continuous spats with the government over some blocks or other.  His new ventures Reliance Retail is yet to show the money.  Reliance Jio is still to come to the market, although it has been quite many years that he had won the airwaves.

G. M. Rao of GMR owns the Delhi Daredevils team has seen his net worth erode with the falling stock price of his GMR infrastructure.  His fortune, which was over $5 billion when bought IPL franchise in 2008, is now down to less than one-fifth of that value (share price 15.2 on December 11, 2015 versus around Rs 454.88 on July 13, 2007).

T. Venkattram Reddy, a newspaper baron and chairman of the Deccan Chronicle, bought the Hyderabad franchise, Deccan Chargers, $107 million in the IPL team auction in 2008.  The Reddy’s are now in the middle of a financial mess and their net worth (considering the loans and over pledging of their shares) are in the negative.  T. Venkattram Reddy was arrested by CBI on February 2014 for bank fraud.

The owners of the franchises of Punjab have had their share of ill luck with their franchises being cancelled and then subsequently keeping their franchises through court orders and are going through arbitration.  Film actor, who partly own these franchises, have all but finished her career in the acting arena and the personal chemistry between the actor and industrialist has gone for a toss over the years.

The Rajasthan franchise likewise has been suspended from IPL for 2 years, film actor who partially owned the franchise is no more seen in films and was last heard writing books.

Subrata Roy of the Sahara Group bought the Pune franchise for $370 million.  Subrata Roy is fighting legal battles with SEBI and is in Jail for almost 2 years now.

N Srinivasan, owner of the Chennai franchise (through India Cements) has lost his post in BCCI, ICC and his team remains suspended for 2 years.  The company India Cements which is the owner has lost two-third of the value (from Rs 329 on December 14, 2007 to Rs. 81.15).

The owners of the Kolkata franchise perhaps are the only ones who have been largely unaffected by the enchanting music of the sirens as are largely going around with their other business as smoothly as ever.

Now, two more companies have entered the IPL for 2 years.  Sanjiv Goenka through a subsidiary of CESC has bought the Pune franchise and Intex has bought Rajkot franchise through a negative auction route (at negative 16 cr and negative 10 cr respectively).  While Intex is not listed in the bourses, the market has already seeing it as an unrelated and risky diversification for Goenka's flagship firm CESC Ltd, which has steady cash flow from power distribution.  Shares of CESC and group companies like Phillips Carbon Black and Saregama are expected to take huge beating if the sirens can have their latest prey.

Although primarily none of the owners have lost heavily on their cricket teams and most of the franchises are making money, IPL seems to have uncanny similarities with the Greek Sirens.  Only time will tell if the new owners (Pune and Rajkot) fall prey to the sirens or keep their ears plugged with wax à la Kolkata (franchise owners).

Wednesday, December 2, 2015

National Pension Scheme (NPS)

The New Pension Scheme (NPS) was launched on May 1, 2009, by Government of India for all the citizens through PFRDA – Pension Fund Regulatory and Development Authority of India.

The NPS architecture consists of the NPS Trust, Central Record keeping Agency, Pension Fund Managers, Trustee Bank, and Custodian.

The NPS architecture was made operational for Central Government employees from April 1, 2008. The NPS architecture has also been offered to the State Governments to manage the pension corpus of their employees. As many as 22 State Governments are at different stages of adopting the NPS.

The NPS has been in operation for over 6 years now total assets under management of the NPS currently stands at Rs 87,000 crore and 94 lakh subscribers invested in it.  For returns, check

PFRDA has appointed 22 Points of Presence (PoPs) and 6 Pension Fund Managers for offering NPS to citizens.

The current NPS has both tier I and tier II. The typical feature of tier I type plan is that it does not allow to make any withdrawals before 60 years. However, there can be exceptions. The tier II type of fund which will have no lock in is also available (which is essentially like a MF).

Pension Fund Managers will manage 3 separate schemes, each investing in a different asset class. These assets classes are equity (E), government securities (G) and credit risk bearing fixed income instruments (C). However investment by an NPS participant in equity would be subject to a cap of 50% and the fund managers will be able to invest only in index funds that replicate either BSE Sensex index or NSE Nifty 50 index. The subscriber will have the option to actively decide as to how the NPS pension wealth is to be invested in these 3 asset classes or can also go for an ‘auto choice’ option. In this option the investment will be determined by a predefined portfolio.

Minimum contribution is Rs 6,000 annually and minimum of 4 payments per year (minimum 4 payments totalling a minimum of 6000) and there is no maximum limit.

The minimum age to enter the scheme is 18 years and the maximum is 55 years.

The best thing about this scheme is the fund management charge is a bare minimum of 0.0009% (amazing but true) and that is much cost effective than the mutual funds or unit linked insurance companies charge (which range from 1.5% to 2.5%).

Costs: The application form will cost Rs 40 (maximum) and for every transaction Rs 20. Switching from one fund to another will cost Rs 20. However, one switch every year is permissible. Apart from this, Rs 350 has to be paid as annual maintenance charge to National Securities Depository Ltd. (NSDL), which is the central record keeping agency for all the individual pension accounts (the charge is similar to demat account).

Tax benefits: National Pension Scheme will have tax benefits under Section 80C up to Rs 1 lakh annually.

Pay outs: Payments will be made once age 60 years is attained. A part of the invested money will be paid out as lump sum (maxm of 60%), and the balance will be kept back as annuity. This annuity will be paid out as pension. In case of untimely death, the nominee will receive this amount.

Exit age: One has to compulsorily exit the system on or before attaining the age of 70 (this clearly is an disadvantage as people live much longer these days).

Advantages of NPS:
1. Unlike the traditional retirement products, such as PPF and EPF; NPS is not a defined benefit (no fixed returns), but rather a defined contribution plan. Thus, while investment in PPF and EPF attract a fixed rate of interest, returns from NPS will be market determined. NPS is a better choice since EPF/PPF gives 8% interest rate, but in NPS one can get better returns because of the equity portfolio of the scheme.
2 Comparing with other pension funds, like from private insurance companies, the charges of NPS is much less so the ultimate return will be more. NPS is also transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the subscribers will be able to know the value of the investment on day to day basis.
3. It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).
4. It is regulated by PFRDA with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust.
4. In the new draft tax code coming up in 2011 only life insurance and pension funds will have the EEE status (exempt, exempt, exempt) and even PPF will be EET.

Summary: NPS has been made in the lines of the “401K plans” of the US, and as the corpus grows PFRDA will bring in more options apart from the 3 funds that are available now. NPS is not yet popular because NPS does not give commission to any agents and thus nobody promotes NPS and the awareness is much less among the general public and in fact the agents try to sell other pension products or ULIPS rather than NPS (because of the heavy commissions on the ULIP based retirement plans).

From current FY, Finance Minister Arun Jaitley introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. 

According to me, NPS is the best retirement solution available and NPS should be in one's portfolio along with EPF/PPF and equities (direct and MF) to maintain financial independence even after retirement.

Saturday, November 28, 2015

Nitish Kumar's Gujarat Model

Nitish Kumar, CM Bihar, has finally adopted the Gujarat Model, although this model of Gujarat has nothing to do with growth or development but prohibition.  The chief minister is ready to lose 4000 cr of revenues to do away with the social evils associated with boozing.  It is entirely a different thing that during the elections, EC had seized more than 1 lakh liter of alcohol and perhaps alcohol played a great role in the state election.

Now the question remains if the state’s women population will have Ache Din (it is they who had complained to the CM and asked for prohibition) and their male counterparts stop boozing.  This leads to the question does prohibition work.  Well, I have seen Haryana in prohibition but liquor was found everywhere, people would smuggle in liquor from Delhi and/or locally make desi versions.  The women did not have Ache Din, but the government definitely had Bure Din (in terms of revenue).

In the 1920s even United States had prohibition for 13 long years and we had the “bathtub gins” and “moonshine gin” doing the rounds and the drinkers who needed to drink, drank at any cost.

In Gujrat, one can order liquors on the phone and get free home delivery of the choicest brands albeit at a much higher price than rest of India.

The major prohibition side effect in India is mushrooming of illicit liquor vends, which often turns to poison resulting in large scale deaths.  Consumption of cough syrups, which have high alcohol percentage, (Phensedyl and the like) as an alternative rises when alcohol is in short supply and have the potential to doom much more lives than liquor itself.

The ones who want to drink will always find a way to drink whatever might be the cost.  The greatest loser will be the state, not just in terms of the revenue lost from the taxes but also the increased cost in implementation of prohibition.  Another loser will be the restaurants and the travel industry (although Bihar is not a major tourist destination in any case).

The Ache Din finally will be coming for the illicit alcohol manufacturer; the state police, the corrupt ones, who will be more interested in catching liquor bottles and getting their palm’s oiled rather than look after law and order problems and the pharmaceutical companies who might see a spurt in demand for cough syrups, nitrogen pills, tranquilizers.

Finally over the last few months we had raging controversies with politicians asking us what to eat, what to read or what to watch.  While those bans grabbed the headlines and the “experts” debated for hours in the TV how unjust bans were and govt should not interfere with people’s personal choices, I guess the same “experts” will have no objection to this move when the same politicians are defining what we should drink (legal or illegal hooch).

Friday, November 27, 2015

The New Kwid on the block

Lower inflation, lower interest rates, and improved sentiments, truly the Ache Din has finally come for entry level cars in India.  After four years of continuous decline, entry level segment posed a growth in the April-October period.  With new entries being lined up, this market (mini car segment) will start expanding again.  Once the bonanza of the 7th pay commission starts flowing, many automobile majors are gearing up to share the spoils.

The instant hit among in this segment has been the new kid on the block, none other than the Renault Kwid.  Renault India Pvt Ltd is a wholly owned subsidiary of Renault S.A (not listed in the Indian bourses).  Renault has brought new life to the entry level automobile market with its good looking Kwid (looks of an SUV and priced as an entry level mini) disruptively priced at Rs. 2.56 Lakhs (ex-showroom Delhi).  Renault Kwid was already grabbed a 10% share of the segment in the first month of its launch in October and reports suggest Kwid has already got 70,000 booking from the length and breadth of the country.  With Renault planning to increase its reach by opening new channels of distribution, Kwid is expected to grab 20% of the market by the end of the December quarter.

This is the second major success story (as per early trends) for Renault in India after Duster (which grabbed around 30 awards).  Renault has a total market share of less than 2% in the Indian automobile landscape, which is likely to improve with the grand success of Kwid (at least what the initial reports suggest).

The website says “The KWID’s design strategy symbolizes dynamic performance, robust strength and a taste for adventure. Its SUV-inspired stance offers a high driving position and greater visibility, making it ideal for zipping around in urban traffic or roaring down the open highway.”

With this huge appetite for the Kwid in the domestic market, Renault has already ramped up the production to bring down the waiting period of the car.  A customer presently has to wait for up to 6 months to lay her hands on the new Kwid (depending on the variant). Renault is also expanding its dealer network and just opened its 190th dealership in Karimnagar, Telengana. Renault would like to open 240 dealerships and service facilities in India by the end of calendar year 2016.

Renault Kwid comes with a SUV like look and a high ground clearance exudes strength and robustness.  Kwid comes in four variants -- Standard, RxE, RxL and RxT.  Kwid has a 799cc 3-cylinder petrol engine, which is tuned to churn out 53bhp and a peak torque of 72Nm with a 5-speed manual gearbox.  The Renault Kwid is powered by aSCe Smart Control efficiency engine with advance technology for accurate air to fuel ratio monitoring.  The company brochure says Kwid has a fuel efficiency of 25.17 kmpl (for all those who are wondering “kitna deta hain”).  Renault Kwid will also get 1.0 litre and AMT (Automated manual Transmission) variants in India next year.  In terms of safety, Kwid comes equipped with driver side airbag and central locking system.  Renault Kwid comes with the user friendly MediaNav multimedia and navigation system which features first-in-class 7 inch touch screen display.  Renault Kwid comes in Fiery Red, Ice Cool White, Moonlight silver, Outback Bronze, Planet Grey colors.

Kwid, the new kid on the block, is stylish and unlike competition has a premium look and finish packed with several safety features yet priced to perfection.  It is this premium look, packed with safety features, at the perfect price that has done the magic for the Kwid.

Renault has proved that for a model to succeed, one needs to deliver in terms of quality, looks, and pricing aggressively to grab market share rather than creating hype, pay millions to sign on sports stars as brand ambassador and other marketing gimmicks.

Wednesday, November 25, 2015

Tata Motors --Turbulent weather ahead

Tata Motors Ltd’s September quarter performance was a huge disappointment even with the low expectation from the market.  After the results were announced, leading brokerage firms have cut price targets for Tata Motors.

On the domestic front, commercial vehicle market (medium and heavy) is still subdued.  A year or so back Tata Motors had poached Mayank Pareek from Maruti in the hopes of reviving the passenger vehicle business and regain market share, this too has not gone as anticipated.

While passenger vehicle sales rose 8.5% year-over-year in the April-October period in India, commercial vehicle sales increased 8%.  Although Tata registered an impressive 14% sales growth for its passenger vehicle portfolio in the seven month period, this growth is still less than anticipated.

Much was expected from the launch of the Genx Nano, Zest, and Bolt models.  Following the launch of the sub 4-meter compact sedan, Zest in August of last year, the automaker’s monthly car sales in the country rose (year on year) after many consecutive months of decline.

After more than a year after launch, Zest is selling one-tenth the volume of its chief competitor, Swift Dzire.

Tata Zica, which is scheduled a January 2016 launch, will come with two engine options – a 1.05-litre 3-cylinder diesel and a 1.2-litre petrol engine. While the former is an all-new unit, the latter is the same that powers the petrol versions of the Bolt and Zest.  The pricing is expected to be Rs 3 lakh – Rs 4 lakh (the buzz being 3.6 lakh).

Rising disposable incomes and low fuel cost and the upcoming 7th pay commission bonanza are supporting growth in the passenger vehicle segment in the country, Tata Motor with its poor quality products (passenger car segment) is not expected to catch much of the action even with its HorizonNext products.

Tata Motor’s passenger car sales are still far behind the market leader Maruti and even with the new launches (Tata Motors plan to launch 3-4 new car every year), new marketing campaign, new brand ambassador (only time will tell if a football superstar can pull customers in non-football countries like China and India) Tata Motors still has poor perception in the customer’s mind (truck like comfort in cars!!).

In fact Goldman Sachs has downgraded Tata Motors to sell from neutral as it believes the stock has priced in better H2FY16 volume growth and margin after H1FY16 slump.

Tata Motors has rallied 16 percent in past three months against a 10 percent fall in the BSE Sensex.  Goldman Sachs believes the stock is going to face headwinds of China’s moderation of growth and volume shift to lower-margin Jaguar brand.  The brokerage has slashed 12-month target price to Rs 363 from 369 and cut FY16-18 earnings per share estimate further by 21-26 percent driven by JLR  margin weakness and elevated depreciation & amortisation charges.

Tata Motors posted a loss of Rs 430 crore in Q2FY16 against profit of Rs 3,290.8 crore in year-ago period (impacted by Tianjin Port explosion).

JLR's operating profit dropped 36.9 percent to 589 million pound in September quarter compared to 933 million pound in same quarter previous year.

"Further, cyclical upturn in the India business remains sub-optimal with upcycle FY18 RoE (return on equity) of 11 percent even as we build-in in revival in the commercial vehicle (CV) market share," it says.

Moreover, the recent Volkswagen ‘Dieselgate’ may also weigh on JLR’s regulatory capex, Goldman feels.

The management in the conference call said that margin erosion was due to temporary challenges—adverse regional mix and product mix, along with high product launch costs, marketing spending and unfavorable forex revaluations.

Although developed countries like the UK and the US are showing higher sales growth, these are not sufficient to offset the fall in China’s sales.  While production in China through JLR’s local joint venture to cater to its domestic market is a positive as it will bring down the prices and help compete against other luxury brands.  This coupled with lower commodity prices might offset the lower sales in China if the company can achieve higher volume sales.

I expect little or no upside from this level (short term) and see the stock hovering around Rs 345-360 in the near term.  My view on Tata Motors remains reduce.  As for long term investing, I see better rates to start taking an investment call as there is a strong possibility of falling in a value trap at the current price level.

DISCLAIMER:  These are my views and I can change them at any time.  I plan to go short on Tata Motors at around Rs 428/- 432/- range but can change my view and even go long at any point of time.  Consult your advisor before going short on Tata Motors.

Sunday, November 22, 2015

Forest sofa


There was a time when birds would flock to me and bees buzz around, now as I lay down in desolation, no one seems to care, but I dream to stand up once again.

Saturday, November 21, 2015


This is a photo blog on 2 tortoise in a Kali Temple in North East India where they are fed and loved. The temple has many tortoise in its pond. I succeeded in capturing two on my camera

Friday, November 13, 2015

The Sun will Shine and You will make hay

Sun Pharmaceutical Industries Limited is a Indian pharmaceutical company headquartered in Mumbai with global operations (Indian multinational).

Sun manufactures and markets pharmaceutical formulations and active pharmaceutical ingredients (APIs)

The company offers formulations in various therapeutic areas, such as CardiologyPsychiatry, Neurology, Gastroenterology and Diabetes. It also provides APIs.

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Vapi with five products to treat psychiatric disorders.  Cardiology products were introduced in 1987 followed by Gastroenterology products in 1989.

Over the years, Sun has acquired multiple pharmaceutical companies, mostly in stress and successfully turned them around.

Sun Pharma has been under pressure for the past two quarters due to one-time charges due to merging Ranbaxy to itself along with compliance issues (USFDA) at its manufacturing unit (Halol) and the erstwhile Ranbaxy manufacturing units. However, the guidance for lower one-time expenses related to Ranbaxy merger indicates that the worst is probably over.

The con-call post the announcement of the Q2 indicated that Sun has already site transferred Gleevec from Halol to another US FDA approved plant and Ranbaxy merger synergy will be achieved ahead of schedule.  Sun has already sold a division of Ranbaxy (Solus and Solus Care) to Stride Arcolabs for Rs 165 Crore to consolidate the CNS division.

Earlier in September, Sun Pharma had announced plans to sell a manufacturing facility in Ireland (previously owned by Ranbaxy) as part of its consolidation process post the Ranbaxy merger

Post Ranbaxy, Sun through one of its subsidies has agreed to acquire US-based InSite Vision Inc. in a deal worth $48 million (about Rs.300 crore), benefits of which should start coming in the future quarters.  If media reports are to be believed, Sun is in advanced talks to buy a portion of Swiss drug maker Novartis' portfolio of old branded products in Japan in a deal estimated at $300 million (about Rs 2,000 crore).  Japan is the world’s second biggest market (by value) for pharmaceuticals.  The deal if consummated should open up a new market for Sun.

Sun Pharma also expects to get the phase 3 trial data for its novel molecule - MK3222, which was in licensed from Merck and is likely to be filed in CY 2017

Finally Sun is trading at Rs 742/- which is a 38% discount from the high of Rs 1200.7 it achieved a few month back.  Although Sun Pharma is not a cheap stock by any means with a forward PE of 36.2, but I think there is a lot of value in the stock as the earnings improve as the Ranbaxy merger slowly achieves synergy and the new acquisitions starts brining in more cash.

Sun's low-cost advantage, strong brand recognition, and proven capability in manufacturing complex products and turning around companies (Ranbaxy should be turned around pretty soon) supports sustainable long-term profitability.

As the news flow right now is negative for the company (USFDA warning to Halol plant), the price of the stock is down and as the saying goes either you get good news or good price.

I would be buying into the stock in every dips with a holding horizon of 3 years and my conviction is high that Sun will shine in the Indian Stock markets again pretty soon.  As the saying goes “make hay when sun shines” I hope to make hay as the Sun starts shining again but till then I will accumulate Sun Pharmaceuticals.

Disclaimer:  This is my current opinion.  I have a very small holding in Sun Pharma right now which I plan to increase.  I might change my opinion at any time, buy more or sell what I have or short sell.  Please consult your advisor before acting on my opinion.

Thursday, November 12, 2015

Samvat 2072 Stock picks

Stocks which have the potential to give handsome returns

1.  Rural Electrification Corporation.
2.  ICICI Bank.
4.  Power Finance Corporation.
5.  Reliance Capital.
6.  L&T