Kalia_Test Posted March 22, 2015 Author Posted March 22, 2015 I have studied a few such Financial blunders/robbery/innovations in India...whatever you want to call them and will write my opinion on them soon... What I have in mind are 1. SUUTI - Special Undertaking of UTI 2. Neyveli Lignite ( this will not fit in a post - it needs a booklet to explain all angles ) 3. Ambani and L&T ( great inspirational story of of how Naik faught and WON the battle against the powerful Ambanis )... Whatever I write, there are more knowledgeable and articulate people who might have provided their perspective already but I will try and give my own take ( apologies if I make any mistake ).... Economics wizards and Stock market experts - give your own interesting stories here :two_thumbs_up:
vvvslaxman Posted March 22, 2015 Posted March 22, 2015 Thanks man :) I have been into economics over the last 6 months. Fascinating. My main education has zero relevance to economics. But just wanted to know about it.
jusarrived Posted March 22, 2015 Posted March 22, 2015 ^ NPA issues is long term execution related and will take a long time. Immediately what they should do is to merge all these small PSU banks (PSB, syndicate, dena, allahabad etc etc) into fewer banks. Efficiency will improve This has been talked for about 10 years now .infact there was a proposal to merge all of them into 4 big banks . Couple of reasons why its stayed a idea . MNC banks like Citi , StanCh & HSBC dint really gain marketshare that every one anticipated . A few of profit making PSU banks are not very keen .( The smaller banks are actually relatively doing better than their bigger counterparts , reverse in case of SBI and its associates though ) Another big factor , Trade unions which are extremely strong .
jusarrived Posted March 22, 2015 Posted March 22, 2015 Finance was always was my first interest , no Idea how I ended up in IT . Stock Market really helps to keep your self informed :)
randomGuy Posted March 22, 2015 Posted March 22, 2015 This has been talked for about 10 years now .infact there was a proposal to merge all of them into 4 big banks . Couple of reasons why its stayed a idea . MNC banks like Citi , StanCh & HSBC dint really gain marketshare that every one anticipated . A few of profit making PSU banks are not very keen .( The smaller banks are actually relatively doing better than their bigger counterparts , reverse in case of SBI and its associates though ) Another big factor , Trade unions which are extremely strong . I dont think large no. of PSU banks is even sustainable. There is so much duplication of work like creating and maintaining software, opening branches etc that will be save by merging. I dont think you can say the bolded part for PSU banks. Having seen the NPA levels of both small n big ones, i can say that both small and big are equally bad. You are right abt SBI's subsidiaries like sbbj , state bank of mysore, travancore etc though.
randomGuy Posted March 22, 2015 Posted March 22, 2015 I have studied a few such Financial blunders/robbery/innovations in India...whatever you want to call them and will write my opinion on them soon... What I have in mind are 1. SUUTI - Special Undertaking of UTI 2. Neyveli Lignite ( this will not fit in a post - it needs a booklet to explain all angles ) 3. Ambani and L&T ( great inspirational story of of how Naik faught and WON the battle against the powerful Ambanis )... Whatever I write, there are more knowledgeable and articulate people who might have provided their perspective already but I will try and give my own take ( apologies if I make any mistake ).... Economics wizards and Stock market experts - give your own interesting stories here :two_thumbs_up: i am no expert n haven't studied many cases, but a couple of things I check for possible lack of ethics / 'Financial robbery' - 1. how is the company using the extra cash - whether it is hoarding cash, whether or not its paying dividend, is it using cash in an unfair way to minority shareholders maybe for the advantage of promoters... good dividend paying managements have less chances of being unethical. 2. Operating cash flows - If OCF is -ve for many years but the co. is showing profits, then the balance sheet may be cooked n it may be showing profits as 'receivables' that the co. will never actually receive. it may be a sign of a fraud management or of a risky co.
randomGuy Posted March 22, 2015 Posted March 22, 2015 Thanks man :) I have been into economics over the last 6 months. Fascinating. My main education has zero relevance to economics. But just wanted to know about it. same here. I am 9 months into this. Have read no books or e-books. Just google for all the stuff I have to learn. a lot of things come intuitively n formal definition only confirms the idea.
amiret Posted March 22, 2015 Posted March 22, 2015 I have studied a few such Financial blunders/robbery/innovations in India...whatever you want to call them and will write my opinion on them soon... What I have in mind are 1. SUUTI - Special Undertaking of UTI 2. Neyveli Lignite ( this will not fit in a post - it needs a booklet to explain all angles ) 3. Ambani and L&T ( great inspirational story of of how Naik faught and WON the battle against the powerful Ambanis )... Don't know much about Neyveli Lignite. But i do recall SUUTI was created in the aftermath of the Ketan Parekh Stock scams , UTI scam and problems in US64. I recall how UTI was forced to buy ridiculously overvalued shares of HFCL (himachal futuristic) @ Rs.2,500 and Cyberspace Infosys LTD @ Rs.930 . There was also a Ranjan Bhattacharya ( son-in-law of Vajpayee ) and Ambani angle to it. Cyberspace crashed to Rs.6 within 1 year and HFCL was available for Rs.25 .The promoter of Cyberspace infosys ran away from the country. There were allegations HFCL was a front company for Reliance . I remember how Mr.Jaitley praised the over 14,000 crore bailout of UTI at the expense of taxpayers over 12 years ago in Rajya Sabha. That was big money then . The Hindu had correctly predicted that this bailout would also lead to bailouts of IDBI and IFCI. IDBI was bailed out with over 9000 crores in 2004. The Govt had allowed GE and Bechtel to dump Enron(Dabhol) on NTPC and Gail while IFCI & IDBI were saddled with the debts of an nonviable power plant which became NPA's affecting their profitability for many years. I won't even venture to talk about the collapse of the Regional stock exchanges and their bailouts after the stock market scam of 2000-01 OR companies like Silverline technologies and DSQ who with the help of political connections took advantage of gullible investors and pliant Public sector financial institutions OR how Shankar Sharma of FirstGlobal was made a scapegoat by the NDA Govt because he had a small stake in a new venture called Tehelka. my memory is sketchy but what i realized many years ago is that it does not matter which Govt is in power ; corruption ,scams and wastage of public money has always been a regular feature in India. The brilliant investigative journalist Sucheta Dalal , who used to write for Financial express more than a decade ago , was the source of lot of information in the late 90's and early 2000's. Her articles from those years should still be available online. Here is 1 article on Rediff LINK. Sucheta Dalal's articles should be required reading in Every school .
Vilander Posted March 22, 2015 Posted March 22, 2015 This is one of the most informative thread in ICF. Keep the posts coming, Economics/Financials literates pls..its beyond me to research these by myself.
Kalia_Test Posted March 23, 2015 Author Posted March 23, 2015 Nice to see the interest level on Economics and such stuff. I can contribute over the next few days/weeks as I will have a bit of free time :winky: Note : I am a hardcore IT professional and am much much more comfortable in IT. Finance is just my interest. Please do not hesitate to correct me if I am writing anything incorrect or am missing something Also these posts will be very lengthy so if you do not have time at a stretch, kindly bookmark and come back to read fully when you get time. I want to start with happier times for Indian Companies and then later move on to robberies and stuff. ------------------------------------------------------------------------------ Today I will write about how I got introduced to LBO ( Leveraged Buyout ) and how 2 giants of Indian Corporate World dared to dream BIG and achieved something that was unparalleled in Indian corporate history. Let us go back a decade and a half to UK. Summer has not yet set in ( it was February ) but British citizens would have woken up shocked to read this piece of news :- http://news.bbc.co.uk/2/hi/business/658724.stm Tetley Tea, inventor of the teabag and maker of the traditional English cuppa, is being bought by Tata Tea of India. What was more shocking was the size of the deal - about 271 million pounds ( around 450 million dollars ). The networth of Tata Tea at that time was about 110 million USD ( source : Annual report of Tata Tea and general news on size of deal ). How could a company 4 times smaller buy out the larger firm? :hmmm: Tata Tea simply did not have the money and as with any acquisition-merger, there are risks that the deal would not turn out to be as expected. How can Tata Tea make the acquisition and yet contain its risk to a manageable level? How can it raise the money to finance the buyout? Raising such huge amount as equity was simply not possible and raising debt would expose its own balance sheet and lead to bankruptcy if the deal did not turn out as expected. However, 2 visionaries and giants had different thoughts. They were ready to take up the challenge and dream. - Ratan Tata ( then chairman of Tata Group ) and Rana Kapoor ( Then Head of Rabobank India and currently CMD of Yes Bank ) After a lot of deliberations, they decided to go through the LBO route. It still needed blessings of parent Tata Sons as surely some risk of Capital was there. Blessing obtained and now to action. What did they do? 1. A Special Purpose Vehicle (SPV) or Special Purpose Entity ( SPE) called Tata Tea ( GB ) was created. This Vehicle was infused with about 60 million pound equity by Tata Tea and 10 million pound by its US subsidiary Tata Tea Inc - Total 70 million pound ) 2. Word about SPV - Without going into all the jargon, to put it simply - treat is as a company in which Tata Tea bought shares as investment. So if the company goes bankrupt, then Tata Tea will lose all its investment i.e 70 million pounds. However, claims on that company ( the SPV) are NOT backed by Tata Tea or its assets beyond its equity investment 3. So far so good. Now the SPV needs to raise debt. Something needs to back up the interest and eventual principal repayment. What can it be? Tetley's assets ofcourse :haha: 4. With all his experience and acumen, Rana Kapoor pooled in an array of investors ( PE funds, Investment Bankers,etc ) and raised about 230 million pounds as debt. 5. The above debt was repayable in 7-10 years and had a good yield ( there were classes of debt but its not very relevant here ). The debt repayment was backed by cashflows from Tetley's assets and ( if really needed ) from the equity infused by Tata Tea. 6. Now all the assets of Tetley ( including brand,etc) were bought by this SPV and the asset acquisition complete.:two_thumbs_up: 7. Once debt repayment is done, this SPV would become a normal subsidiary of Tata Tea and start giving it dividends,etc. The revenues and profits can also be clubbed with those of Tata Tea ( which would not be the case when it was a SPV AFAIK ). Note another big difference here. Generally, when acquisitions happen - shares of the target company are purchased by the acquirer. Here nothing like that happens. Tetley was still held by its original shareholders. After selling the assets, Tetley ( and therefore its shareholders ) got the cash but all its operating assets are gone. This cash could theoretically be used by Tetley to make investments or buy some other stuff or distribute the cash to all shareholders ) p.s : The then Tata Tea has now morphed into Global Beverages giant 'Tata Global Beverages' and has since added many brands into its basket ---------------------------- Anyone on Leveraged Recapitalization?
Sachin=GOD Posted March 23, 2015 Posted March 23, 2015 Excellent post on LBOs. If anyone is interested in a book on a LBO (though the story of the book is much more than just a LBO), I would highly recommend 'Barbarians at the gate'.
Kalia_Test Posted March 23, 2015 Author Posted March 23, 2015 Excellent post on LBOs. If anyone is interested in a book on a LBO (though the story of the book is much more than just a LBO)' date=' I would highly recommend 'Barbarians at the gate'.[/quote'] Great book :two_thumbs_up: However, looks like most ICFers are interested in the secular vs non-secular, church vs temple, why XYZ is reporting this but not that kind of stuff... I have always stayed away from that kind of debate... Why? There is NO country in the world with as much diversity and issues as in India....It is really easy to pick any incident and put a spin on it...either pro-hindu or anti-hindu...bloody we are 1.2 billion people...only China is ahead of us and they have no media freedom... Why the **** do you even care about this crap? Do what you want to do in elections...Vote for who you think is right and then let them do what they think is right... Give suggestions,etc but what is this cr@p in ICF nowadays? All threads are about stones on church, hindu marrying muslim or vice-versa... How does it impact you? Are you here to score online brownie points against a user-iD? Sorry if my post sounds rude.... I had written something that I thought will be useful for ICFers and to be fair, posters were happy and wanted discussion on this... Very very sad that crap discussions have taken over... ICFers - Kindly let go of your one-upmanship on other posters ( they will not feed you when you need food ).... Let us use this forum to discuss constructive things please....
Sachin=GOD Posted March 23, 2015 Posted March 23, 2015 Great book :two_thumbs_up: However, looks like most ICFers are interested in the secular vs non-secular, church vs temple, why XYZ is reporting this but not that kind of stuff... I have always stayed away from that kind of debate... Why? There is NO country in the world with as much diversity and issues as in India....It is really easy to pick any incident and put a spin on it...either pro-hindu or anti-hindu...bloody we are 1.2 billion people...only China is ahead of us and they have no media freedom... Why the **** do you even care about this crap? Do what you want to do in elections...Vote for who you think is right and then let them do what they think is right... Give suggestions,etc but what is this cr@p in ICF nowadays? All threads are about stones on church, hindu marrying muslim or vice-versa... How does it impact you? Are you here to score online brownie points against a user-iD? Sorry if my post sounds rude.... I had written something that I thought will be useful for ICFers and to be fair, posters were happy and wanted discussion on this... Very very sad that crap discussions have taken over... ICFers - Kindly let go of your one-upmanship on other posters ( they will not feed you when you need food ).... Let us use this forum to discuss constructive things please.... Yes, absolutely brilliant book. The background of various companies/individuals was the best part about it IMO. I just finished 'Disney War' - its about Michael Eisner's 20 year reign as Disney Chairman and CEO. Good book, though it could have been better. Could you recommend any other books on conflicts within companies or about sale of big companies? Well, ICF is a reflection of what's happening in the county in general right now - if you criticize Modi/praise Cong then you are 'Congi stooge' or you are a 'Sanghi' in case you praise Modi/criticize Cong. There is no middle ground and the media is constantly adding more fuel to the fire by its increasingly biased coverage for/against different parties.
Kalia_Test Posted March 23, 2015 Author Posted March 23, 2015 I had to let go of my disgust and I did - I feel normal ( for) now :two_thumbs_up: Over the course of a decade or so, I read many great books written on economics and stock picking... The book you quoted is one of the best on conflicts and take-overs. I cannot think of anything better on that subject... On general stuff, the best are Warren Bufftet's letters ( freely available ) and books by Peter Lynch ( One Up on Wall street and Beating the Street ). Nasem Taleb's 'Fooled by Randomness' and 'The Black Swan' are great too. You can read Robert Kiyosaki's ' Rich Dad Poor Dad' and other books by him. Take only essence though as there is some garbage there not applicable to India. Unfortunately, there is not much literature in Indian context about take-overs and corporate fraud. Sure there are some articles by Sucheta Dalal of moneylife and the likes but I have my own opinions about her and the magazine...( I had some debates with her and it is not fair to make it public here )...
dial_100 Posted March 23, 2015 Posted March 23, 2015 ^ Many of us think that way too. We all have some time to spare and we like this forum but in the process we do not gain whole lot other than someone who puts efforts to facilitate such good discussions or shares information. We have lots of derail monsters everywhere who take pride in derailing every discussion. Anywho, this is a great informative stuff here.. :two_thumbs_up:
Kalia_Test Posted March 23, 2015 Author Posted March 23, 2015 Disclaimer : Sucheta Dalal is someone I have immense respect for. She is a really brave woman that exposed many corporate frauds in India and continues to do so. My only differences were on some numbers quoted in her magazine moneylife. My own esearch did not match with what was printed and I had a few debates with her. Never opposed her thesis though. Respect to her :hatsoff:
Kalia_Test Posted March 23, 2015 Author Posted March 23, 2015 Question to ICFers... Mr. Sukhiram started a company called 'Sabkabhalakaro public limited'. With all his savings he bought 10 units of machinery each of it worth Rs.1 lakh. Each Unit of the machinery can process 1 lakh worth of raw material in a year to produce an end product that can be sold for 1.3 lakh. The business is such that it can pass on any raw material cost increase to customers so that the 30% EBIDTA ( Earnings before Depreciation and Tax ) can be maintained for a long time.... So 10 units give Mr. Sukhiram 10*30K = 3 lakh profit each year on his investment of 10 lakh...He is happy. His company is listed and he sold shares to public through IPO and personally now holds only 40% of shares...His world is his company though and he can never part with his beloved Sabkabhalakaro public limited... Now... Number of shares in the company = 1 lakh ( each with face value of 10 rupees) Profit per share in a year = INR 3 rupees. Post taxes and depreciation, it is say 2.5 rupees So for 10 rupees investment, you get 2.5 rupees as RoE ( no debt )... So share value as per P/E should be P=P/E*E = 25 * 2.5 = 62.5... ..... Unknown to Sukhiram, Mr.Sabkolootungaa is waiting for a bear market.....It has come and share price of Sabkabhalakaro is now depressed at 30 rupees per share... Mr.Sabkolootungaa is planning to make an offer to all shareholders at price of 40 rupees per share. His idea is to acquire 51% of Sabkabhalakaro and reap all future profits.... Mr. Sukhiram does not have money to buy 11% more but he is still the management and can decide what the company can do... What should/can Mr. Sukhiram do?
Sachin=GOD Posted March 24, 2015 Posted March 24, 2015 ^He can try to find someone who is willing to buy 11% or the entire 51% but with good intentions. Or he can take on more debt (via Bonds etc) and use the money to buy the 11% he needs.
amiret Posted March 24, 2015 Posted March 24, 2015 ^^ in your scenario , is a p/e multiple of 25 assumed or is it arrived by some calculation ? i would guess he can take on debt to buyback his own shares but don't know if there are better alternatives.
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