The above three appear to be value buys from the TVS stable. Only question mark could be on the depth of management and succession planning in the case of Fasteners and Wheels India.
Wheels India with a turnover of over Rs 1200 Crs, net profit of Rs 27 Crs, EPS of around Rs 30 has a marekt capitalisation of Rs 180 Crs. In fact the share price is slightly lower than the book value. With a slight imcrease in margins , which is bound to happen once the sector shows some improvement, EPS on a low equity base of Rs 9.87 Crs is bound to gallop. If some one gets an option to buy this Company at a price of Rs 180 Crs, which is the market cap, I think they would be most willing
This caters to quite a number of domestic auto giants
So is the case with Sundaram Fasteners. This had in the past been a Company which caught the market fancy , being an approved supplier to GM etc. In the nxt 1-2 years, once the auto market improves, this is bound to fetch a good return. The current price is just above the book value. Market cap is around Rs 400 Crs, I think
Sundaram finance, a typically good Franchise model , with very good customer depth, branch network etc , market cap of Rs 1600 Crs. Holds a littler over 50% in Royal Sundaram which has started making profits.
Can easily become a bank and a successful one at that. Has the best management depth amongst the three mentioned above
Current prices of these shares
Wheels India - Rs 180 per share
Sundram Fasteners- Rs 28
Sundaram Finance - Rs 590
Tuesday, August 26, 2008
Thursday, August 21, 2008
FCCB ( Foreign Currency convertible Bonds ) the debate- Basics of the instrument
The debate has gathered momentum that is the debate on advisability of this financing mode. What is this FCCB ? Foreign currency convertible bonds
This is a hybrid instrument where the borrower takes money in Foreign currency , has interest denominated in Foreign currency , which is much lower than the Indian Interest rates, but also gives an opportunity for the Investor to convert at a certain rate in the future the investment in to equity. In a way , the investor has an option to buy the Equity at a certain rate at a future date but has no obligation to subscribe if the equity rate goes below that.
The borrower has the obligation to redeem in case the investor opts not to convert
This was quite popular when the share prices were zooming and there appeared to be no downward movement at all.
It also appeared very good at a stage when the Foreign currency interest rate was low and the rupee appeared to have stabilised and not depreciating . Ususally , that is in a classic case, the ruppee depreciation would should have equalled the lower interest that one enjoys in Foreign currency loans. This also appears to have vanished. Ruppee has been depreciating , increasing the interest as well as the loan liability. The upside for the investor also appears to be out since the share market is in in the dumps
There are of course accounting implications which will be discusssed in a future post
This is a hybrid instrument where the borrower takes money in Foreign currency , has interest denominated in Foreign currency , which is much lower than the Indian Interest rates, but also gives an opportunity for the Investor to convert at a certain rate in the future the investment in to equity. In a way , the investor has an option to buy the Equity at a certain rate at a future date but has no obligation to subscribe if the equity rate goes below that.
The borrower has the obligation to redeem in case the investor opts not to convert
This was quite popular when the share prices were zooming and there appeared to be no downward movement at all.
It also appeared very good at a stage when the Foreign currency interest rate was low and the rupee appeared to have stabilised and not depreciating . Ususally , that is in a classic case, the ruppee depreciation would should have equalled the lower interest that one enjoys in Foreign currency loans. This also appears to have vanished. Ruppee has been depreciating , increasing the interest as well as the loan liability. The upside for the investor also appears to be out since the share market is in in the dumps
There are of course accounting implications which will be discusssed in a future post
Thursday, August 14, 2008
Intellectual subsidy ,a fact of life
Subsidy is something that most hate. It is something that the performance driven Capitalist societies abhor. There is sound reasoning and historical evidence as to the ineffectual nature of subsidies. Of course , the whole thing boils down to an argument of , most effective use of resources and diversion of the economic resources to the most cost effective areas.
Subsidies have varying connotations. One is that , able bodied and competent and capable people have to work hard to provide for others. If one does not reap the benefit of one's work, there is no incentive for the competent ones to stretch themselves.
This argument is sound and not without substance and reason. Socialistic system has failed
People get altruistic once they get a lot of fame and wealth. If one steals the thunder , even before they get to that kind of a position, they don;t get so generous. they feel deprived and do not see the need to stretch themselves.
It is rooted in the selfish nature of people. There is nothing wrong. It is an extension of the survival instinct.
Let us just take another look at the subsidies. We keep talking of subsidies in use of economic resources which are tangible and immediately perceived as having some commercial value. Commercial value is a function of the supply and demand disparity or parity as you may call it.
In fact human beings have gone to the extent of ensuring that Intellectual theft is also minimised by enacting Patent laws. That is only for 15 years. After that it is free.
Most of the founding fathers of science, did not enjoy commercial success, they never could exploit some of the ideas commercially. In fact in pure and basic sciences, there may not be any tangible application which can be exploited.
Does that mean that their ideas are not being used. They are very much used and some of them quite extensively. We are able to get patents for specific applications or scientific findings which finds application to something which is easily identifiable to that finding
Something which has a derived use, an application of an application of an application of a basic idea , may never get a patent.
Leave that alone, many of the basic science findings, it could be in the area of Quantun phsyics, it could be development of Periodic table, it could have been deciphering the atomic structure, it could be in genetics,these have had far more impact on our life than a specific application.
All of us are recipients of intellectual subsidy. Few extraordinary able brained people have lifted the condition of the entire humanity. What do you call that ? It is a kind of intellectual subsidy. The men who indulged in such scientific pursuits had just one thing in mind, they were trying to unravel patterns, they were trying to unravel the traits/charecteristics of nature and various aspects around us.
They were not aiming for commercial exploitation. In most of the cases, they were not even looking for fame. That came much later
Let us salute those giants, on whose ideas and findings we have built our word but keep thumping our chests, claiming great achievements
The world runs on subsidy. It runs on the efforts/ideas of a few people to a great extent. We foregt that. I am not for a moment suggesting going back to a socialistic type of economy. I am sure that will not work. All that I am saying is that even now, commercial value attributed to a person and the actual benefit derived by the world out of that person's work or idea , there are vast disparities. Level of subsidy varies from generation to generation and from person to person and vocation to vocation.
Just some initial thoughts on this subject.
Subsidies have varying connotations. One is that , able bodied and competent and capable people have to work hard to provide for others. If one does not reap the benefit of one's work, there is no incentive for the competent ones to stretch themselves.
This argument is sound and not without substance and reason. Socialistic system has failed
People get altruistic once they get a lot of fame and wealth. If one steals the thunder , even before they get to that kind of a position, they don;t get so generous. they feel deprived and do not see the need to stretch themselves.
It is rooted in the selfish nature of people. There is nothing wrong. It is an extension of the survival instinct.
Let us just take another look at the subsidies. We keep talking of subsidies in use of economic resources which are tangible and immediately perceived as having some commercial value. Commercial value is a function of the supply and demand disparity or parity as you may call it.
In fact human beings have gone to the extent of ensuring that Intellectual theft is also minimised by enacting Patent laws. That is only for 15 years. After that it is free.
Most of the founding fathers of science, did not enjoy commercial success, they never could exploit some of the ideas commercially. In fact in pure and basic sciences, there may not be any tangible application which can be exploited.
Does that mean that their ideas are not being used. They are very much used and some of them quite extensively. We are able to get patents for specific applications or scientific findings which finds application to something which is easily identifiable to that finding
Something which has a derived use, an application of an application of an application of a basic idea , may never get a patent.
Leave that alone, many of the basic science findings, it could be in the area of Quantun phsyics, it could be development of Periodic table, it could have been deciphering the atomic structure, it could be in genetics,these have had far more impact on our life than a specific application.
All of us are recipients of intellectual subsidy. Few extraordinary able brained people have lifted the condition of the entire humanity. What do you call that ? It is a kind of intellectual subsidy. The men who indulged in such scientific pursuits had just one thing in mind, they were trying to unravel patterns, they were trying to unravel the traits/charecteristics of nature and various aspects around us.
They were not aiming for commercial exploitation. In most of the cases, they were not even looking for fame. That came much later
Let us salute those giants, on whose ideas and findings we have built our word but keep thumping our chests, claiming great achievements
The world runs on subsidy. It runs on the efforts/ideas of a few people to a great extent. We foregt that. I am not for a moment suggesting going back to a socialistic type of economy. I am sure that will not work. All that I am saying is that even now, commercial value attributed to a person and the actual benefit derived by the world out of that person's work or idea , there are vast disparities. Level of subsidy varies from generation to generation and from person to person and vocation to vocation.
Just some initial thoughts on this subject.
Tuesday, August 12, 2008
TN Newsprint - Strong buy, Sundaram Brake linings- Options mess
TN Newsprint has come out with its qtr results. Not earth shaking, but clear signs of better things to come. Expansion plans are on target. Mill development plan is completed ,pulp production is higher. They have expanded cultivation for wood through contract farming. They have taken several long term measures. In my view, this is a clear Rs 250-300 share in 2-3 years, that is trebling in years, uncertainty being low
Had a look at Sundaram Brake linings Financials. Was quite shocked as to how they got in to this options mess. The company ' networth is Rs 70 + crores and the worst case liability on this options is Rs 110 Crs. Appears that they writtem options contract, where one collects a preimum and extends an unlimited risk or fairly large risk. They have filed a case against the banks involved, Kotak and Yes. Can't understand how they got hoodwinked. Apparently, the management did not undertstand and the bankers would not have educated them. Also do not understand how , couple of people have carried out the transaction without management concurrence
More questions than answers of both, the Company as well as the banks involved.
This could wipe out the Company. I am sure they willc ome to some kind of a compromise
A bank always has a back to back risk cover, but a Company can not. Inspite of that , how they have taken this is a big question
Had a look at Sundaram Brake linings Financials. Was quite shocked as to how they got in to this options mess. The company ' networth is Rs 70 + crores and the worst case liability on this options is Rs 110 Crs. Appears that they writtem options contract, where one collects a preimum and extends an unlimited risk or fairly large risk. They have filed a case against the banks involved, Kotak and Yes. Can't understand how they got hoodwinked. Apparently, the management did not undertstand and the bankers would not have educated them. Also do not understand how , couple of people have carried out the transaction without management concurrence
More questions than answers of both, the Company as well as the banks involved.
This could wipe out the Company. I am sure they willc ome to some kind of a compromise
A bank always has a back to back risk cover, but a Company can not. Inspite of that , how they have taken this is a big question
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