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Saturday, 12 March 2011

Define your Investment Strategy

For years, if not decades, we've lived under complacent financial allocations. Most of us consider debt to be risk-free. Till a few years ago, most of us considered equities to be risk-free over the long-run. We systematically look at price targets on our investments without considering the downside risk we're taking on. The number of equities investors, who get paranoid when their portfolios are down 20% tells you everything you need to know about the lack of appreciation of risk that permeates societies across the world today. Mass-marketing of financial securities has led to a widespread under-appreciation of risk. These false convictions were both the foundations of and the consequence of one of the most pronounced financial bubbles in human history. 

If there's one thing I'd like you to take from this blog, it's this: think through the impact of your financial decisions. Appreciate the risks involved. Pursue returns consistent with your risk-taking capacity. Also understand that the monetary system we live in penalizes idle money. Money loses value over time. A dollar today will be worth less in 2015. So, most of you probably don't want to leave your money idle. However, none of you want to be invested in a stock or commodity based purely on hope. There needs to be a compelling reason that draws your funds into a long-term investment.
There needs to be a degree of conviction to a short-term trade. People have got rich based on good fortune in the past, and they will continue to do so - but, a competitive market punishes gamblers and rewards investors who enjoy a genuine edge in the market place. There is time tested wisdom to George Soros' assessment that "Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes". 

Booking your losses is often an important ingredient in seeking long-term returns. Liberate yourself from any emotional ties to your investment decisions. Investing, trading and making money in markets is about buying low and selling high. Compelling ideas are worth more than mediocre ones - but all investments have a price beyond which they are irrational. Don't get caught up in irrational exuberance.

In the days, weeks and months that follow - I will often draw upon a compelling idea. I might tell you how much of my allocation I consider it worthy of. However, please always make an independent financial decision if you ever choose to follow a recommendation. Risk-assessment is something I will constantly re-visit on this blog. But, don't ever lose sight of the downside risk of any financial security. There are no "sure things" in financial markets - merely high probability events. Good bets and bad bets.

Personally, I don't build hard and fast allocations. I've had zero percent in my equity portfolio on occasion. I've had exclusively long positions. Exclusively short positions. I've had a mix. I've moved significant portions of my portfolio to gold, and I've held no commodity at all. However, this is a consequence of dedicating myself to markets. For most of you, you will need to make allocations. While doing so, you need to consider your time horizon, your appetite for risk and the entry point of your investments. Always stress test your allocations. Consider a scenario where the risk you take on leads to significant downsides. Ponder what you would do in that situation.

Don't expose yourself to risk levels that you can't handle emotionally. Markets tend to oscillate between greed and fear. If you learn to disassociate yourself from both emotions - you will increase your chances of making financially sound, rational decisions.

Happy Investing

Welcome Back

Welcome

Welcome to Eazeetrade. The goal behind this blog is to document my thoughts on global equities, macro-economic trends, economic theory and asset allocation.

A bit of background about me and my point of departure. I have spent several years trading and analyzing various investment instruments. I am more inclined to trade secular trends, but the life of a investor is incomplete without trading those tactical and strategic trades: so you will find plenty of those on here.

I certainly have a set of intellectual convictions. I am a libertarian and I believe in free markets. I am intellectually obsessed with money. There's nothing quite as interesting as it. It's one half of every transaction and perhaps the most important element to modern human history. Of course, I'd like to see a more sound currency. I'd like to see greater freedom. I'd like to see good businesses thrive and bad banks fail. But, let's not get carried away with the political side of what interests me.

As a trader, I'm often long markets which I believe are structurally flawed. There is no contradiction there. Trading isn't a lesson in philosophy, it's a life-long course in analyzing risk. You never want to be on the side of a ship with too many people on it. In certain circumstances, you have to learn to be a contrarian. On other occasions, the trend is your friend.

The best way to think about trading is to divide trades into three broad categories. Secular trades, which you want to be involved in over many years. These must be backed by a big idea. A thesis. A sound rationale and inescapably sound logic. Secular trades will usually make you the most money. The life of a trader isn't one that revolves around big secular calls, however. It revolves around the second type of trade. Strategic trades. These essentially involve making a limited call on the future. A strategic trade may be to short an automobile manufacturer under conditions of rising interest rates and commodity costs. It may be to go long exporters under conditions of a weakening domestic currency. It may be to be short the market due to expectations of a negative industrial output reading. Strategic calls are challenging - but, if they're well executed, they can be deeply rewarding. Finally, as a trader, you tend to spend a lot of time figuring out tactical trades. These aren't the most intellectual exercises on the planet. These calls focus on execution. They're all about getting involved in a terribly oversold stock, and getting out at the first sign of resistance.

The above is what I consider most relevant about my approach and background. I currently focus primarily on Investment opportunities in India, Canada and USA but my methods of analysis and views are primarily global. The blog will feature plenty of thoughts on global indices, commodities and such - but, stock specific stuff will usually be restricted to India, US of A and Canada.

One of the main reason's I am now documenting my trades is because over the last few years, I was deeply pessimistic about the economy at the top and I grew quite bullish in March '09. In between all that, I have picked out key variables that defined relative out-performance. I do believe my approach to markets is founded in a deeply agnostic, dispassionate approach which might aid some of you in your understanding of markets. I'm not a classic technical trader - but i use a lot of technical analysis in the way I trade markets. At some stage, this blog may be the starting point of bigger things.

Until I decide otherwise, consider this a free to view, free to use blog on the global economy. Feel free to comment on any posts - lively debate is always enjoyable. I will also be posting details on trades I enter, before I enter them, with my target price, stop-loss level and I'll sometimes take you through a trade where I change those levels around based on various indicators. I'm a passionate trader, a genuinely inspired economist and a generally curious human being who loves markets. I look forward to sharing thoughts on a range of issues with you.

Cheers

Saturday, 15 January 2011

Sincere Apologise for the Absence

Certain events in my life have kept me away from what I love doing, which is exploring the capital markets. Totally Unacceptable! I will begin updating regularly and more frequently from here on. Stay tuned, an update is coming next week.

I will move from this blog to my own domain ( www.investmentmusings.com ).Picked a new theme. Set the front page to a single page rather than latest Posts (good or bad idea? Comments please). will Import all my content and your comments from my blog ASAP.Please leave me your comments if any on how to improve and be user friendly.

Hope all of you enjoyed reading my previous posts, whil my previous posts covered investments ideas I will share with the readers some ideas obviously supported by a cogent reasoning
 
I would be pleased if viewers share their ideas and we can then discuss the investability of such idea.Mutually lets make money by sharing our knowledge.

Kind Regards

Prashant
www.investmentmusings.com

Sunday, 31 October 2010

Coal India Allotment Plan Out

Dear Fellow Investors

Linkintime(http://www.linkintime.co.in/site/ipo.asp) the Registrars to the IPO of Coal India completed the allotment of the shares today, I have been alloted 199 shares for every full application(Rs.98,000/-) I submitted, interestingly the allocation has been higher than most Pundits in the market had predicted.

Retail investors will get shares at Rs 232.75 apiece after a discount of 5 per cent on the issue price of Rs 245.

Surprisingly many stock market "Pundits" had predicted a maximum allotment of 173-183 shares for retail investors despite having knowledge of two things — subscription of 2.31 times in the category and under-subscription in the employee quota, as is evident from the actual allotment that the Pundits got their calculations wrong YET AGAIN.

I am pleased to inform that I published a detailed analysis wherein I discussed various scenarios with a view to calculating the number of shares that will be allotted and in the process suggested an allocation of atleast 191 shares for every full application submitted, the link to my artcile is posted for your convenience.

http://eazeetrade.blogspot.com/2010/10/coal-india-black-gold-allotment.html
 
As I mentioned on my blog on the 26 October, Empowered Group of Ministers(EGOM) decided to distribute the unsubscribed portion of the shares in the employee quota proportionately among the qualified institutional bidders, high net worth individuals (HNIs) and retail investors. 

According to that formula, retail shareholders got 35 per cent of the unsubscribed shares added to their pot.

Of the 6.32-crore shares on offer for the employees, only 0.1 per cent were subscribed because of the persistent campaign by some Coal India unions who did not let employees apply for shares.


CIL Grey Market Premium:

Interestingly the grey market premium is still quoting between Rs.39-42 per share clearly indicating the euphoria, Please note retail investors have been allotted shares at 5% discount so RII's will be issued at Rs.232.50 per share, in net effect a retail investor's share has a total premium of atleast Rs.50 per share

Now that we know that retail investors have been alloted 199 shares, in net effect each  retail allottee is sitting on a profit of  Rs.9,950 /-on a total investment of Rs.98,000/-that works out to 10% return on investment. Kudos to Coal India for leaving money on the table for the small investors.

For those of you who pre-sold your allotment for Rs.4,800 to Rs.5,000/- unfortunately thats a notional loss of Rs.5,000/- per application.

Listing Strategy: 04th November 2010

In my opinion, Coal India deserves to trade at a premium to global coal peers with a price target of anywhere between Rs.300 to Rs.325 on listing. The coal-major has substantial headroom to increase prices in coming years and will provide a linear earnings trajectory and impressive returns on the capital employed.

This is the first IPO in India which will have the listed company direct entry into Nifty 50 and Sensex 30 indices.
This is the first IPO for which there will be a direct entry into the derivatives (futures & options) segment


If in the process of booking profits if CIL lists at 275 and below, then please go out there and buy (obviously subject to your own due diligence), this is a share which you can bequeath to your grand children.


Happy Investing

Prashant

Thursday, 28 October 2010

Curious case of SEBI's Misguided IPO Missile-Perspectives of a Retail Shareholder

The Securities and Exchange Board of India (SEBI) on the 25th October 2010 decided to double the maximum application size for retail individual investors to Rs 2 lakh across all  Intial public issues(IPO) by companies, without changing the retail quota. Currently, individual investors are classified as retail investors only if their investment is INR.1 lakh or less in an IPO. 

Presently in all IPOs, approximately 35 per cent is reserved for retail investors, 15 per cent for high net worth individuals(HNI) and 50 per cent for qualified institutional buyers(;QIB) it is suggested by SEBI that due to the previous low investment limit, very often the retail portion is undersubscribed. 


Addressing the media, SEBI Chairman Mr. C.B. Bhave said that “the complaint from both sides – the investors as well as the issuers of the IPO was that the quota for retail investors was insufficient thus causing under application.”
According to a discussion paper released by SEBI, large-sized public issues easily require between 1.5-2 lakh applications to meet their retail quota. This is much higher than the 35-70,000 applications received from retail investors in recent issues claims SEBI.  

SEBI also noted that in recent public offerings, approximately 75% of applications in the retail category have come in the size of INR.80,000-Rs1 lakh. The number of applications in the non-institutional category, which is used by high net worth individuals, is usually above Rs5 lakh, but retail investors avoid investing in this segment since the reservation of shares is only 15% against 35% for retail.

According to the regulator, the proposed increase in the investment limit is intended to keep pace with inflation and also the changing nature of market valuations. As per SEBI while inflation is close to double-digits, the market has risen over 125% since 2005. Rs1 lakh does not fetch the retail investor too many shares, given the bloat in share valuations.

Except for a few, almost every expert on the street is supporting the proposal on the grounds that it will attract more retail participation.

I beg to differ with the majority of the experts, for I strongly believe that all the changes proposed by SEBI would do is attract more money from some existing investors "who have the money " but who could not apply because of the previous limits, and not necessarily from new or small investors. 
This policy announcement singlehandedly creates a new investor category- sub-High Net worth Individuals(HNIs)," who would in all likely hood now eat into the share of the real retail investors. Because of the proportionate allotment system, and with the pie remaining the same, the allocation to the real small investors would go down substantially.

However, if the sub-HNIs are now being expected to be the saviours, let it be clear that  should the QIB response to an IPO not be enthusiastic, the sub-HNIs would not be there to bail out the retail portion.

It should be understood that it is not increasing the investment cap that would bring more retail investors participation, instead it is the quality of the company, the offer price, the market sentiments and the availability of shares, among others, that will.

SEBI has observed that in recent public offerings, approximately 75 per cent of applications in the retail category have come in the size of Rs. 80,000 to Rs.1 lakh, whereas in the HNI category, the number of applications in the size of less than Rs. 5 lakh is negligible. 

The above suggests that the retail who have the capacity and appetite to apply for securities worth above Rs.1 lakh were constrained from doing so because of the Rs. 1 lakh limit, nor do they make an application under the HNI category because the allocation there is limited to 15 per cent.

Now, nearly 60 per cent of the applications were below Rs. 75,000 and 55 per cent were below Rs.50,000. At the upper end, only 8 per cent of the applications were in the Rs. 75,000-Rs,95.000 block while 32 per cent were at the Rs. 1 lakh level. These 32 per cent are the rich individuals and almost all of these would now move straight to Rs. 2 lakhs (and not to Rs. 1.25 lakh or Rs. 1.50 lakh).

If there is a concentration at the Rs.1 lakh level, it is because the few richer individuals, normally leveraged, are applying to get allotments which are difficult to get in the HNI category. 

In 2005, the cap was increased to Rs.1 lakh from Rs.50,000. This had a negative impact on allocation to the real small investors, as the richer guys started applying for Rs. 1 lakh and eat into this pie. The assumption that the existing investors have a larger appetite and are not able to fill it is, therefore, misguided. In the proposed move, it is also the IPO financing firms who will benefit the most.

Majority of the retail investors struggle to arrange the Rs. 1 lakh to put in an application, with SEBI having increased the limits to Rs.2lakhs, it will only benefit applicants with huge cash, the small real retail investor will suffer, now even the retail category will most likely be played by the richie richs of the country, the problem will increase even more when good issues are bunched together, the rule if implemented would work against the interest of the real small investor.

SEBI's move would make it harder for small investors to obtain shares through IPOs. Investors who subscribed to only the minimum number of equity shares in an IPO will now get fewer shares whenever there is an over-subscription. 

For retail investor to have a better chance of allotment, the percentage allocated to retail category should have been raised. 

As stated above raising the capital limit works well for retail investors with lots of money. Since with the same percentage of IPO shares, bigger lots will get more shares and small investors who cannot put in full application will lose out on allotment, this will crowd out small investors.

The decision is likely to deprive shares to smaller retail investors bidding in IPOs of companies with mass appeal and good track records. 

Policy, in any case, should not favour the HNIs at the expense of the retail, especially at this time when we are talking of increasing the retail investor base and of financial inclusion. If HNIs, in fact, need to be encouraged, let 5 to 10 per cent be taken out of the QIB quota and be given to them.

Good companies with right price will always see phenomenal response from retail and Coal India's IPO is a case in point. 

Why should anyone be bothered if the retail portion goes undersubscribed in bad issues; it should actually make everyone happy.

In particular why on earth should I be bothered, I will always have the money to make a full application be it Rs.2 lakhs or even Rs.5lakhs if SEBI decides to increase the limit further. 

It is my belief that the policy was wrongly based around the concern that large IPOs might not elicit sufficient retail response, if it was SEBI’s intention to increase small shareholders participation in the IPO’s then the percentage allocated to retail category should have been raised. 

Kind Regards


PRASHANT


Tuesday, 26 October 2010

Coal India- Black Gold : Allotment

Dear All

The mega IPO of Coal India has been has an astounding success and Empowered Group of ministers(EGOM) priced the issue at the upper end of the price band at Rs 245 per share(Retail investors will get 5% discount on the above price). The government will rake in an unprecedented Rs 15,200 crore from the issue

The icing on the cake is that 90% of the unsubscribed employee quota will be apportioned between Qualified Institutional Buyer (QIB), retail and high net worth individual (HNI) in 50:35:15 ratio, in net effect it will aproximately add 2 crore shares to the retail portion.

Coal India IPO where the total IPO size was $3 billion and the retail bucket itself getting 2.5 times subscribed with close to $3 billion demand according to me is fantastic.

The company is expected to list on stock exchanges on November 4, a day before Diwali. The IPO, which closed on October 21, was subscribed 15.17 times, and mopped up Rs 2.35 lakh crore($54 Billion) against an issue size of Rs. 15,200 crores($3.2 Billion).

When it lists on the stock exchange it should open at a fairly good premium, CIL deserves to trade at a premium to global coal peers, given much lower volatility in earnings and a large headroom to raise prices in a supply-deficit environment.


COAL INDIA LIMITED SUBSCRIPTION STATS:

Sr.No. Category No.of shares offered/reserved No. of shares bid for No. of times of total meant for the category
1 Qualified Institutional Buyers (QIBs) 284236398 7019464125 24.70
1(a) Foreign Institutional Investors (FIIs)
4933872050
1(b) Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1807527975
1(c) Mutual Funds
266896250
1(d) Others
11167850
2 Non Institutional Investors 85270919 2166004875 25.40
2(a) Corporates
1384329500
2(b) Individuals (Other than RIIs)
764448150
2(c) Others
17227225
3 Retail Individual Investors (RIIs) 198965479 458634025 2.31
3(a) Cut Off
392048500
3(b) Price Bids
66585525
4 Employee Reservation 63163644 6174300 0.10
4(a) Cut Off
5849500
4(b) Price Bids
324800


How many shares will the retail investor be alloted per full application

Total shares reserved for Retail Individual Investors (RIIs)198965479 (A)
35% of the unsubscribed shares reserved for Employees    =  19946271  (B)
                                                                                       --------------------
            Total shares reserved for allotment to RII's (A+B)    218911750 (T)
                                                                                        --------------------


No. of shares bid in RII segment = 458634025 Total Bids(TB)
No. of shares bids at cut off price =392048500 Cutt-off Bids(CB)

Worst Case Scenario:

In this instance we calculate allotment number by taking into consideration the Total Bids received against shares reserved for RII Segment as calculated above (A+B)

Total shares reserved including the 35% of the unsubscribed employee protion = 218911750(T)
Total Bids received =458634025(TB)

Hence = T/TB=0.477
Assuming all applications were for 400 shares then:

Allotment will be 400 shares  x 0.477= 191 shares will be alloted to retail investors.

Best Case Scenario

In this instance we calculate allotment number by taking into consideration the Cutt off bids received against total shares reserved for RII Segment:

Total shares reserved including the 35% of the unsubscribed employee protion = 218911750 (T)
Cut off Bids received (CB) =392048500 (CB)

Hence = T/CB=0.558

Assuming all applications under Cutt off's were for 400 shares then =


Allotment will be 400 shares x 0.558=223 shares will be alloted to retail investors.


In as much as the price has been fixed at the upper band the chances of getting better alotment increases.

In my opinion each RII who submitted a full application for 400 shares may be alloted atleast 191 shares and  may inch upto 223 depending on the applications submitted by those investors who applied on a fixed price basis.


CIL Grey Market Premium:

Currently quoting between Rs.39-42 per share, Please note RII are allotted shares at 5% discount so RII's will be issued at Rs.232 per share.

Current Grey market premium quoting at Rs.39-42 per share and add the retail discount of Rs.12, in net effect a retail investor's share has a total premium of atleast Rs.50 per share

Thus each allottee is sitting on a profit of  Rs. 10,000/-atleast per full application on a total investment of Rs.98,000/-

For those of you who pre-sold your allotment for Rs.4,800 to Rs.5,000/- thats a loss of Rs.5,000/- per application.


Listing Strategy: 04th November 2010

In my opinion, Coal India deserves to trade at a premium to global coal peers with a price target anywhere between Rs.300 to Rs.325 on listing. The coal-major has substantial headroom to increase prices in coming years and will provide a linear earnings trajectory and impressive returns on the capital employed.

This is the first IPO in India which will have the listed company direct entry into Nifty 50 and Sensex 30 indices.
This is the first IPO for which there will be a direct entry into the derivatives (futures & options) segment


My recommendation is that if CIL lists at 275 and below then please go out there and buy (obviously subject to your own due diligence), this is a share which you can bequeath to your grand children.


Happy Investing


Prashant

DISCLAIMER


I am NOT an investing professional. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.


Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors!

Sunday, 24 October 2010

BAJAJ HOLDINGS: LIBERAL BONUS ISSUE OR HEFTY DIVIDEND ANNOUNCEMENT PROBABILITY

BAJAJ HOLDINGS: CMP: Rs.869.45/-

Bajaj Holdings & Investment reported unaudited results for its quarter ended September 30, 2010 on 19th October 2010.

Bajaj Holdings & Investments net profit surged by 97.47% and stood at Rs 590.30 crore for the quarter ended September 30, 2010 as compared to Rs 298.92 crore for the quarter ended September 30, 2009. Its total income stood at Rs 608.15 crore for the Q2 FY11, spiked up by 97.52% as compared to Rs 307.89 crore for the Q2FY10.

On Consolidated basis, the groups net profit has expanded by 99.29% to Rs 649.45 crore for the quarter ended on September 30, 2010 as compared to Rs 325.88 crore for the corresponding quarter of the previous year. The total income has increased from Rs 210.63 crore for the quarter ended September 30, 2009 to Rs 427.41 crore for the quarter ended September 30, 2010.

            Immediate Triggers.      
  1. Bajaj Holdings will be among the 23 scrips added to the F&O segment from 29 October 2010. It is most likely that operators may take its share price to Rs.1000-1100 levels post debut into the  F&O segment For those of you who own the stock it’s a strong: Hold your Horses, for those of you who donot have any ,I would recommend(obviously subject to your own due diligence) either a staggered investment and for aggreissive investors buy and hold.
  2. With the Q2FY11 performance of Bajaj Holdings being better than Bajaj Auto with an EPS of Rs.61 against Rs.23 of Bajaj Auto, I foresee either a LIBERAL BONUS announcement like Bajaj auto did a couple of months ago or a hefty dividend payout, if any of this event materialises then I am confident that Bajaj Holdings will not only touch my target price of Rs.1500 but also surpass it quite easily in 6-8 months’ time period.
       Technical Perspectives :     
  1. Bajaj Holdings is trading very close to its rising trend line support which it has been  respecting post it November’09 lows of Rs.465/-
  2. Also at such important trend line support it has a confluence support coming in from multiple exponential moving averages and Fibonacci numbers.
  3. Momentum oscillators are also positively placed which add weight to the positive sentiments.
  4. Going ahead the stock has resistance at 890 and 900 levels where as strong support is seen at 850 and 825 levels.

        Happy Investing


       PRASHANT




DISCLAIMER


I am NOT an investing professional. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.


Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors!

Thursday, 21 October 2010

ALL THAT GLITTERS IS NOT GOLD

All that glitters is not gold is a well-known saying, meaning that not everything that looks precious is precious.In my opinion Gold by itself qualifies for this adage.

I was speaking with a very dear friend of mine, we discussed if it was wise to buy gold at the current ruling prices particulalry when every analyst seems to be predicting an immediate price target of Rs.30,000 per 10 grams in the next 3 months and goldman sachs predicting $5000/oz equivalent to Rs.250,000/- per 10 grams


Experienced investors know that no trend -- no matter how profitable -- lasts forever.


The same should be true for gold. Gold has risen from below $700/oz. in November 2008 to $1,315/oz. in the beginning of October 2010. That's an +88% gain in under two years.


Futures for the yellow metal are now up by an incredible 20 percent this year, putting it on course for a 10th consecutive year gain, the longest surge the metal has seen for some 90 years.


And while any mention of shorting gold is enough to get a gold bug's blood boiling, one day not far from today the time will come when it's the right trade to make.


Consumer sentiment


I believe that time may have arrived to short Gold for I strongly believe the economy internationally is bound to improve, jobs will be created and a brighter future is heading our way.


 The above very much reflect the effect that confidence has on the economy. If things eventually look up, the average Prashant and likes will no doubt invest in risky assets that offer the chance for higher returns.


Returns generated from a growing economy create optimism that the future will be brighter than it is now.
On the other hand, if I do not have confidence in the economy, they I am more likely to consider owning gold to protect my capital.


Until people have more confidence in the economy, many investors will continue to hold more gold than they've typically held in the past.


Gold prices tend to move opposite of consumer sentiment, So when consumer sentiment trends down, the price of gold trends up. The reverse holds true as well.


In a nutshell, when you fear of a major crisis in the near future and which according to you may drive confidence down, placing some of your capital in gold makes sense. As fear drives gold higher, you can ride along.


But when confidence hits its lowest point world over (it is my view that may be it cannot get worse) which it seems to have done a couple of months ago and then starts turning up, in my view it may be time to start reducing your gold holdings. Any improvement in the consumer sentiment numbers will encourage investors to sell their gold and move into assets such as equities.


Time to short gold?


Above I have focused on how to time and when to short gold.


When an asset like gold has had a large run-up on the deterioration of expectations by consumers and investors, there is bound to be a retreat, especially when investors begin to move their capital to higher risk assets and away from gold.


As consumer sentiment rises and confidence slowly returns to the economy, investors holding gold will soon start selling some or all of their holdings, which will drive down the price.


While it may not be part of the mainstream sentiment about gold in India, My observation is that as an investor one needs to be greedy when other are afraid and vice versa, that's the sort of bet to look for and without any emotions attached sell Gold where by you book your profits.


Risk Factors
Should rampant inflation occur, caused by out of control money printing, and initiate a full blown dollar crash, then indeed the unbelievable predictions that gold prices will soar beyond anything imaginable may indeed be possible.


Prashant


DISCLAIMER


I am NOT an investing professional. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.



Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors!



Wednesday, 13 October 2010

Coal India-Black Gold-IPO Notes-Subscribe at Cut-off

                                  Coal India-Black Gold-IPO Notes-Subscribe at Cut-off. 

                      
  •                       Price Band: Rs.225-245, Retail Investors and Employees will get 5% discount. 

India’s Energy Scenario and Coal

India is currently among the top three fastest growing economies of the world. As a corollary, India's energy needs too are fast expanding with its increased industrialisation and capacity addition in power generation. This is where 'coal' steps in, as the most dominant energy source in India's energy scenario.

Coal India Limited at a glance


Coal India Limited (CIL) - a Schedule 'A' 'Navratna' Public Sector Undertaking under Ministry of Coal, Government of India, has its Headquarters in Kolkata, West Bengal. CIL produces non-coking coal and coking coal of various grades for diverse applications.

As of March 31, 2010, CIL operates 471 mines in 21 major coalfields across eight states in India, including 163 open cast mines, 273 underground mines and 35 mixed mines (includes both open cast and underground mines). 

CIL also operates 17 coal beneficiation facilities with an aggregate designed feedstock capacity of 39.40 million tons per annum. 

Coal India's major consumers are the power and steel sectors. Others include cement, fertiliser, brick kilns etc.

Reasons to apply in the IPO:

·         CIL sits on reserves which is the largest among all its peers in the world by many times.

·         CIL’s coal production has steadily grown and today is the largest coal mining company in the world.

·         The aggregate production last year was 431 million tonne which is slightly higher than the aggregate production of the second and third largest coal mining companies in the world.

·         At USD 12 per tonne it is one of the lowest cost coal producing company in the world.

·         CIL has one of the highest total factor productivity which drives down the cost to it being one of the lowest in the world

·         Demand of coal in India is outpacing availability and supplies, particularly because of the power generation capacity addition programme that has picked up in the 11th Plan period. The coal demand is expected to increase at somewhere around 9% to 10% per annum.

·         CIL is financially profitable, debt free, very large, financially sound company and this has happened by pursuing a strategy which is aimed at physical volume growth.

·         So all in all CIL has a cost advantage, size advantage, reserve advantage and most importantly has a insatiable demand advantage.

·         CIL registered a turnover of Rs 47,000 crore (Rs 41,000 crore) last fiscal and a net profit of Rs 9,600 crore (Rs 2,079 crore).

·         It has a cash surplus of Rs 38,000 crore and earmarked $1.5billion for overseas acquisitions.

·         The current coal that CIL sells in the market is at deep discount(approx. 40-50%) to prices prevailing globally. 

·         One reason for the discounted price is CIL sell’s coal unwashed and the unwashed coal has an inconsistency in quality. The corollary to that is if CIL removes that inconsistency by getting into washing steadily, CIL should be able to achieve a price convergence. That is actually the margin growth story which CIL has.

·         CIL intends to go in for washing of the thermal coal it produces in a big way. CIL are setting up as many as 20 washeries with a total capacity of 111 million tonne to wash the coal that is being produced from thier existing mines.

·         Price of washed coal will be almost 50% more than what CIL realises from sale of different grades of unwashed coal under a regulated pricing regime.

·         Out of its total production of over 430 million tonnes of coal, CIL currently washes a meagre 13 million tonne(mt). As per management this is expected to increase to 300 mt or 55% of total coal produced by CIL by 2016-17.

·         If that washing takes place, then CIL can have a 45% to 50% jump in the prices in comparision to what it realises currently.

The world's largest coal company, is the best play on India's rising coal deficit, and thus is an attractive bet at the price band of Rs 225 to 245 a share. Retail investors Subscribe at cut-off price for it should trade at atleast 30% premium to its offer price.

Happy Investing

Prashant

Disclaimer

I am NOT an investing professional. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.

Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors! 


Tuesday, 12 October 2010

Kohinoor Foods: India on a Platter: CMP Rs.61.50

Kohinoor Foods: India on a Platter: CMP Rs.61.50


When Scott Price, president and CEO of Wal-Mart Asia, visited India last year, he talked about helping the country become food basket of the world and sourcing $1-billion worth of goods from here.

Perhaps he drew inspiration from the growing presence of Indian specialty food brands in the shelves of global retailers such as Wal-Mart(USA),Tesco(UK), Ralphs, ASDA(UK),Somerfield(UK) and Safeway.
Food-processing- a growing market.

India is one of the largest food producers with the industry estimated at more than $200 billion, according to a Confederation of Indian Industry study that projected it to grow to $310 billion by 2015. But India accounts for less than 1.5% of international food trade.

The ministry of food processing estimates the size of the industry at Rs 1,44,000 crore. But exports of processed food stood at just Rs 10,000 crore in 2008-09. It is estimated to be growing at around 15% over the past two-three years.

India's packaged food exports can expect dramatic growth driven by changing demographics, growing population and rapid urbanization along with increased government support. These factors will increase the demand for value added products and thus improve the prospects of food-processing industry in India.

With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2012. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion by 2014-15 assuming a growth of 10%.

The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector. Several global food giants and leading Indian industrial enterprises are already making their presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India ,Kelloggs, Hindustan Unilever, ITC-Agro, Conagra.

Indian Food for the International Markets

There are many people of Asian origin in developed/developing countries and the globalization and popularity of Indian cuisine has now allowed companies from India to tap into the mainstream developed markets. Most importantly there is this huge Indian market to cater to, and then Indian food is gaining a lot of importance in many international markets. 

KOHINOOR FOODS-Ready to Eat: A Primer

Kohinoor Foods Ltd. embarked upon its journey in 1989. Since then it has been treating every milestone achieved as a stepping stone to go past another one. Today, in India and in over 60 countries, consumer's lives have been touched by not only some of the finest basmati rice brands, but also a wide assortment of food products that includes Basmati Rice, Ready to Eat products, Cook-in Sauces and Cooking Pastes to Spices, Seasonings and Frozen Food. It’s a feat that Kohinoor Foods Ltd. pulled off by spreading the authentic India flavour abroad. Thereby becoming a well-known food giant with one of the most powerful brand in its stable - Kohinoor.

At present, the company’s offerings are preferred by connoisseurs across the globe - from the USA, Canada, Australia, New Zealand and the UK to the Middle East and South East Asian countries. And they adorn the shelves of reputed retail chains like Metro Cash n Carry, Walmart, Reliance, Big Bazaar, Spencer's, Vishal, Shubhiksha, Hypercity, More, Nilgiris in India, TESCO, Somerfield and ASDA in the UK, Costco in Canada, Hankyu, Daimaru & Takashimaya in Japan, Coles & Woolworths in Australia, Krogers, BJs and Whole Foods in the US and Seven Eleven and Mustafa in Singapore. 

To be a globally competitive organisation, Kohinoor Foods Ltd. has strategic bases in the US, the UK and the Middle East. The company has two 100% fully owned subsidiaries – SOL Inc., operating from New Jersey, USA that looks after the North American and Canadian markets, and Indo European Food Limited, in the UK with headquarters in London, that looks after the European markets. The joint-venture company Rich Rice Raisers Factory LLC operating from Dubai, UAE takes care of the markets in the Middle East.
Even in India, Kohinoor Foods Ltd. has a wide-spread presence that boasts of an extensive and unmatched distribution network with more than 200 thousand retail outlets, 100 super distributors and 600 stockists.
And all that is supported by a strong Quality Control culture with dedicated and fully equipped QC centres and micro-biological labs, manufacturing and processing facilities that are HACCP and ISO 9001:2000 certified, US-FDA & FSA compliant as well as Kosher certified.

Kohinoor Foods Ltd. has emerged as an enterprise with very strong and dynamic fundamentals. And there's only one way things are looking - UP!

Kohinoor Foods Ltd. is no stranger to awards and recognition. And with its huge list of accomplishments, it’s really no surprise. Incredible as it may sound - 868,500 finest basmati grains flow out every second from Kohinoor factories. If on one hand, Kohinoor Basmati Rice is the first branded food from India to be served on board Malaysian Airlines, than on the other hand, Kohinoor has an elite list of customers that includes the Royal Palaces of Brunei, Emirates and the Sultanate of Oman. That’s not all, Kohinoor Foods Ltd. can be credited with a lot of firsts in the category-
• First to introduce one & five kg packs in the rice category – changing the way India buys rice
• First to start building brand in a traditionally commoditised market
• First to advertise rice in the Indian market
• First to bring automated packaging machines and color Z series Sortex machines to the country.

What’s more, the company has also received many prestigious and coveted awards - the APEDA award for fourteen consecutive years, Certificate from Guinness Book of World Records for making World's Largest Biryani, The National Award for Export Excellence, the Brand Equity award and a host of others. But the recognition that’s closest to the company is the one awarded by millions of satisfied customers across the globe who vouch for the authentic Indian taste it offers.

After operating in the basmati rice business for almost two decades, both in the India and the International markets, Kohinoor have not only gained a leadership position for themselves, but they have also come to understand that there is a huge potential in bringing Indian Specialties in their absolute authentic form to people all over the world. Indian food with its authentic taste has fans in huge numbers at almost any corners of the globe.

In this context, Kohinoor Foods have so far identified 6 different categories which could help the brand bring Indian Specialties in different forms to people all over world – The Indian Basmati Rice in which the brand has been operating for last so many years. The other identified categories are Ready-to-Eat Curries, Spices, Frozen Foods, Cook-in Sauces and Cooking Pastes. All together, this portfolio of different categories of products allows the brand to come out with a huge range of dishes. 

If you look at the brand Kohinoor is well-established in fact few years back it was selected as a super brand and it is probably the only rice brand in the country to be selected as super brand.

This company has got an excellent distribution network. They have close to 150 distributors, 600 stockiest and the product is sold at over 2.5 lakh retail outlets. Besides this, this company has got distribution network in place in more than 52 countries.

To summarise, you have a company, which has got a strong brand. It is available at significant discount to the price at which promoters increase their stake in the month of February. In fact, promoters increase their stake at a price of Rs 78, stock is available at Rs 65.

So it trades at a substantial discount to its 52-week high. Numbers – quarter-on-quarter (QoQ) have been quite good and I think the potential of the segment in which the company operates ready-to-eat food as well as rice, they are all driven by India’s domestic consumption story. So you have a company, which is trading at very sensible valuations and the product have got good potential and the downside looks restricted from the levels of Rs 55.

It is interesting to note that the total market capitalisation of Kohinoor is 1/5th of its annual sales and it is worthwhile to mention that MTR Foods was sold to a Norwegian company at 2.5 times its annual sales.

Below is the annual Income statement which shows consistent growth year on year.

Income Statement 2009-10    2008-09    2007-08   2006-07   2005-06
Revenue                 772.80     635.76      635.06      589.23      541.08
Other Income             3.12         2.10          2.58          2.01
Total Income          774.85     638.88      637.16      591.81     543.09
Expenditure           -659.11   -542.03     -552.38    -530.77    -491.35
Interest                    -65.74     -53.09       -69.11      -19.82      -15.58
PBDT                       50.00      43.76        15.67        41.22        36.16
Depreciation            -10.22     -10.72      -10.39      -10.40         -8.40
PBT                          39.78       33.04        5.28        30.82         27.76
Tax                           -2.49         6.17         0.04        -8.75          -6.25
Net Profit                   8.22       -10.79        5.32        22.07         21.51
Equity                       28.19        28.19      19.60        19.60         19.60
Reserves                 179.09      164.97     124.62     118.93             --
EPS                           2.92          -4.08        2.71        11.26        10.97

Overview:
  • Available at 1/5th the price to sales ratio. Mcap of 180 crores as opposed to 850crores expected sales for 2010.
  • Sunrise Indusry with huge potential for growth
  • Prime takeover target-previous history-Temptation Foods Saga
  • Previous takeover suggest that Price to Sales was 2.5 times(MTR Foods), with this being the benchmark the company may be taken over if it does happen at a valuation of atleast 1800crores
  • Superbrand status-Kohinoor available in all stores including Reliance and otehr hypermarts and in 52 countries and almost in all the big supermarkets in all the western countries.
  • Promoters are increasing their stake quarter on quarter and are even suggesting an open offer.
In my opinion, the food business in India is growing fast and will grow much bigger in the near future and Kohinoor has a huge business opportunity. This calls for an increase in the need for good packaging, good bottling, good bottle cap manufacturers, labels, cans, etc. We do not have enough people doing the right things when it comes to these, and these are in short supply. It is in this area that Kohinoor has a huge advantage. So that when the food business grows big, Kohinoor will be ready with all these provisions to make a good business themselves.

I recommend a buy in the stock of Kohinoor Foods from a Medium-to long-term perspective. It is apparent from the charts of the stock that it was on an intermediate-term downtrend from its September 2008 peak of Rs 130 till its July 2010 low of Rs 43. However, the stock reversed direction taking support from the significant support band between Rs 41 and Rs 43. Since then, the stock has been on a medium-term uptrend. While trending up, the stock surpassed 21 and 50-day moving average one after another and is trading well above these averages. I am bullish on the stock from a medium to long term horizon. I anticipate it to move up until it knocks my price target of Rs 130. 



Happy Investing

Prashant