One more Hyderabadi Biryani

Ramky Infra - Two particular interesting things with this company, one
it is based out of Hyderabad and two it is in the infrastructure
space. Our fixed Income Professor at XLRI once mentioned volatility is
not spread out evenly, it occurs in bunches or is grouped together. :)

And every company after being framed with the charges, comes out with
the same statement. We are cooperating and that it was a regular drill
by the CBI.

Eastern silks - Time for CDR

http://www.thehindubusinessline.com/companies/article2236004.ece

Highway Projects - Bidding again intensifies

http://economictimes.indiatimes.com/news/economy/infrastructure/gannon-bids-lowest-for-nhais-rs-1050-crore-project/articleshow/9230811.cms

The revival of the competitive intensity .There was one report which i
read way back in 2008 that in a market of perfect information symmetry
the bid difference should not have huge difference in bid amounts
until and unless either of the three things happen
1. Information advantage
2. Incorrect assumptions and calculations
3. Overagressive bidding, the developer willing to compromise on the
returns due to intense competition and a desire to gain market share

It is generally dififcult to say what exactly happend, it might be
just one factor dicatting the decision or a combination of all the
three factors, but 98 prequalifications certainly is a lot, which
essentially goes on to show that that the techincal norms are not so
stringent that only a selected set of players make it through. Though
not all these players would be eligible for the bigger projects of say
above 1000cr but the fact still remains that the entry barriers are
the least, the proejcts strains the balacne sheet if your traffic
projections go wrong.

Why promoters convert warrants at prices higher than market prices

Today i was reading an article on warrants being converted by
promoters at prices higher than the current market price. Should the
investor take this news as positive?

The act that the promoter is willing to issue shares to himself at the
current price gives some confidence that the current price might not
be overvalued. But if the warrant price is higher than the current
price, it does not necessarily show additional confidence the company
has in its business. It is merely a simple profit-loss calculation
that the promoter does at his end and decides to converts the warrants
even at higher prices. Consider for example
Amtek Auto which issued 1.68 crore shares to its promoters on
conversion of warrants at 180 on June 27 when the stock closed at 160.

Here is the arithmetic behind why the promoters converted.

SEBI requires 25% of the money to be paid upfront irrespective of the
fact whether you would convert or allow them to lapse. So the
promoters had already paid 75.6cr (25% * 1.68*180). Now had they
allowed their warrants to lapse the net loss to them would have been
75.6cr. This cost is a sunk cost.

Now consider the case when they convert their warrants. They can
purchase those 1.68cr shares from the open market at 160 or get those
share at 180.The net difference being 33.6cr (1.68(180-16)). So the
promoter will stand to loose only 33.6cr while in the first case he
lost 75.6cr.

So the conversion is purely from an economic standpoint less
lossmaking for the promoter as compared to foregoing the conversion
rights.

Interesting move

Everonn moves into the business of school uniform.
http://www.thehindubusinessline.com/companies/article2107323.ece

BGR Energy

There is a BSE announcement made by BGR wherein BGR has said, they have surrendered its Category I (previously Category-F) trading license obtained from CERC. The CERC has cancelled the said electricity trading license in its order dated April 29, 2011. I was reading the petition document, the reason given by BGR is "Due to highly competitive power trading business, uncertainty prevailing in the market and risk associated with it, it has not been able to undertake any inter-state trading in electricity".

Is there a possibility that more smaller players start surrendering their licenses as the margins are thin and volumes get too dispersed if there are too many players? I mean should this not be beneficial to bigger players as competition decreases for them due to un-viable economics of small scale operations? Not saying it can be a trend, but does it not show that the industry cannot support a large number of players and over time only the players with large volumes(read PTC) or captive volumes(read tata power) enough to justify a minimum 12% RoE will only sustain in the business?

The market has reacted positively to this news and BGR is up today.This business does not even contribute a minuscule % of their revenues, yet the stock has moved. I find it strange, or  am I missing something in terms of the money tied for getting the license that might get released after the surrender.

Thomas Friedman - :)

There are two superpowers in the world today, There's the United States and there's Moody's Bond Rating Services. The US can destroy by dropping bombs and Moodys can destroy you by downgrading your bonds.