The need to shift to Mumbai

"To achieve speedier growth it necessitated proximity to financial markets. It therefore planned to shift its registered office to mumbai." - A listed entity on the reason to move to mumbai

Found it really amusing as to how shifting office to mumbai can lead to speedier growth, the company failed to mention if that speedier growth was in share price or underlying business. I dont think mumbai offers anything additional to the company in terms of business, apart from the fact that the company would be closer to investors. But there are numerous examples of companies headquartered in Mumbai but still their share price not reflective of their value. Have put the company on my watch list for seeing how the change reflects in its share market performance going forward.

Repeat Order - Hyderabad Biryani

I had written about how I dislike the managements of most Hyderabad promoted companies, recently came across one more company based out of Hyderabad which is again in trouble. This time its a pharma company, Aurobindo Phrama, the stock fell by 9% yesterday, after the company received a warning letter from the US health regulator with regards to its antibiotics manufacturing unit at Hyderabad.

The company had on 23rd February 2011, submitted to the exchanges, a press release stating that Unit IV of the company has been put on an import ban by the USFDA and it will impact the shipments from unit IV to US markets. On this announcement, the company stock fell by 7.8% on Feb 23, 17% on Feb 24 to hit 170.

Yesterday in continuation with the same, the company has received a warning letter from the agency, and in addition based on the field alert report for packaging and labeling compliance for unit III, the USFDA has also asked for submission of a detailed action plan for improvement. The stock fell 9% and today as i write it is down another 5% to 167. So the intermediate action where the stock rose was just in anticipation that the meeting between the company officials and the USFDA will lead to a positive development. The price is back to the same place as on Feb 24.

There is something in Hyderabad that works against the investors. Its like the Bermuda triangle, you are bound to be in trouble if you fly in that part of the North Atlantic Ocean.

BHEL DIS-INVESTMENENT

Today BHEL released its quarterly and annual results and the stock fell 7%. The market reacted sharply to the results(at-least that was I thought initially). I was confused on the reaction as the results were largely in line with the provisional numbers. I kept reading the other pages of the press release, which had three three things worthy mentioning

1. The company had changed accounting policies which had led to higher profits and revenues
2. Stock split, from FV of 10 to FV of 2.
3. Disinvestment of 5% stake by the government.

Initially after reading and re-reading i could not make sense as to what led to this dramatic a fall in the share price of this big a company. I mean 7% in a day for a large cap should be a black swan event.

I will talk about each point now

1. The company had changed accounting policy in Q2-Q3, so it was not a surprise.
2. Stock split!!! That is generally considered a news to cheer on. There are numerous examples where stock split news has led to stocks being locked in upper circuits. Crazy as it may be, it happens. As behavior analysts put it, people feel more wealthy if they see they own 1000 shares @ 50 as compared to 200 shares @ 250. Anyways that could also have not led to the decline in price.
3. Disinvestment, is it not a good news? I mean on Feb 28,2011 the news of disinvestment led to the PSU index going up 3% as against the sensex rise of only 1%.I dont see anything wrong with disinvestment, somebody wants to sell his stake to raise money, what difference does it make if it is some hedge fund or the government of India and neither do i see anything wrong with offering retail clients a discount of 5% which helps in attracing more investors. I would have never applied to Power Grid IPO had I not got the 5% discount, it does help in broad basing the investor base.

So none of the reason appear justified to warrant such a fall. I was reading one article which said that disinvestment caps the upside movement.I would totally agree, but i need empirical proof of the same, so let us take cues from other disinvestments that the government has done so far in this fiscal in order to see is our view correct

Company Name	Price Band	Issue opens	Issue Closes	Date of announcement	Price on announcement	Price on Issue opening date	Price band and announcement day price differential
Power Finance	193-203	10/05/2011	13/05/2011	10/02/2011	251.95	215.85	-19%
Shipping Corp	135-140	30/11/2010	03/12/2010	5/10/2010	168.1	143.75	-17%
Power Grid	85-90	09/11/2010	12/11/2010	22/07/2010	101.45	99.6	-11%

So we can see the disinvestment has not really gone down well with the markets. Disinvestment is not such a good thing after all as the govt. fixed price is generally 10-20% lower than the price on the announcement date and hence the fall in anticipation of the same.

The 5 I's that spook the market

Consultants, marketing teams had their own sets of 5W, 3Cs and 5Cs, time for something in finance, the 5I's

1. Inflows
2. Interest Rates
3. Inflation
4. International reasons
5. Inaction from the government 

Hats off to the CMD of IDFC securities. :)

http://www.business-standard.com/india/news/qa-nikhil-vora-md-idfc-securities/433099/

Why do companies Delist

A friend today asked me why would companys like Blue Dart etc de-list, i dint know the answer, searched for it and some googling gave the following possible reasons, any more possible reasons for the same are welcome

1. High promoter holding say 70%, will lead the promoters to think, why comply with all the listing requirements quarterly publishing of results, communication, analyst questions etc for the remaining 30% of the shares only, better to keep it in our own hands
2. If the company has now further plans of raising capital, then it might not make sense for them to remain listed, like most of the foreign MNC do for their Indian subsidiaries, when they feel that no more capital will be ever required by the business, they go for de-listing.
3. A company feels that they are undervalued and after trying to communicate the strength of their projects to the market, the fail to elicit the valuations, it would be better for them to de-list and rather go in for a PE funding/Private transaction in case future capital is required because the deal value will not be biased by the CMP.

The making of another Hazare

China to quadruple desalination capacity

http://www.thehindubusinessline.com/industry-and-economy/economy/article1645209.ece

KEC International forays into water treatment business

http://www.thehindubusinessline.com/companies/article1612223.ece

Chemical process piping aims at Rs. 100cr revenues by fiscal end

http://www.thehindubusinessline.com/companies/article1618182.ece

All three articles relating to what acute water shortage is going to happen over the world in the coming years. I guess it can be one of the big macro themes in the coming years. But what might happen if such a things does happen

The smart capaitalist

1. Enter the business seeing huge opportunity as the first mover
2. New technology innovation happens, leading to lower cost of desalination and more business share.
3. Identifies and profits from the opportunity

Others/Non Capitalists/News followers

1. Reads Anna Hazare going on fast, abuses the nation, tweets and India yet again records 4.4 million tweets
2. Cant all those people who tweet or go in the candle light marches be told about capital markets and financial education, and be reminded that markets provide an excellent time to buy stocks at these times and show the world the believe of Indians in their economy.
3. Be reminded time and again of the numerous commissions that have been formed every time somebody goes on fast and draws so much attention. Would it not make sense for them to see what happened to the Kirit parikh report, dumped and thrown. What good what a committee do? Does Anna thinks he achieved his goal by getting a committee formed?
4. Be reminded, that wise decision are to be made in the electoral process, if Anna can go on fast, cant some one supporting him stand for the elections and bring about the change that they speak about on tweets. It is easy to blog/tweet.

Few - Extensive - Neglected

The chart below depicts the share price of INDOBORAX at the end of each quarter along with the EPS recorded in each quarter. Some interesting points about the graph

1. Phase 'FEW': During the period 2005-07, the spike in the price used to happen one quarter before the EPS announcements, the stock was covered but not extensively


2. Phase 'EXTENSIVE': During the 2008-09 period the stock began to get a lot of attention, the price went up 1 year in ahead of the EPS


3. Phase 'NEGLECTED': During the 2010-11 period, the stocks is not followed, no aggressive expansion by the management, well they dont need to, there plant is running at 45% capacity only, people loose interest, the price moves after the EPS has been announced.

Interesting Graph!!