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.

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/