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

Counter Response emailed to JM Financials Re:Cairn India's open offer

Attention of:

Lakshmi Lakshmanan

Senior Analyst - Investor Relation

JM Financial

By Email: lakshmi.lakshmanan@jmfinancial.in

Dear Lakshmanan

Sub: Cairn India Limited(“Target”) Open Offer(“Offer”)

Ref: Your Letter dated October 08, 2010

This is in reference to your captioned letter( “Letter”)

At the outset, before dealing with the contents of your letter I wish to repeat, reiterate and rely on the contents of my earlier letter dated 20th September 2010 wherein I made submissions that the purpose of non-compete fee (NCF) in the present transaction is merely to reduce the cost of acquisition as Cairn Energy(CE) is not capable of “competing” with Vedanta(PAC), and also that any payment of non-compete fee is void and impermissible under S.27 of the Indian Contract Act,1872 and thus not justified, furthermore as this particular transaction causes or is likely to cause an appreciable adverse effect on competition in India it is in breach of Anti-Competitive laws. Please note that none of the statement or contentions contained in your letter are deemed to be admitted by me for want of express denials or otherwise.

The present transaction derives its value from its production fields and exploration blocks which obviously will include all seismic information, drilling operations, which should automatically be transferred to PAC as a result of this transaction, Oil & Gas are commodities which is highly regulated by the Governments of various countries and more particularly in India, Customers buying such commodities cannot be stolen/poached, therefore there is no question of a situation where by CE can use such information to their advantage.

It is my contention that in as much as CE through their Chairman “Mr.Bill Gammell” is on record indicating that they would continue to be invested in Cairn India (Target) as a shareholder belies its claim of negotiating and agreed to receive non-compete fee from PAC and this points towards a nexus between PAC and CE in that CE is only making life that much easier for the PAC by playing footsie with it.

In so far as your contention that CE continuing to retain a 10-20% interest in the Target and the imposition of the non-compete restrictions are unconnected and unrelated does not hold water, the bottom line is non-compete fee and continued interest in the business is an incompatible phenomena in the business world.

When the issue arose as to whether the non-compete was justified given the continuing association of the outgoing promoter with the target company, In “Tata Tea Case’” Hon’ble SAT observed that there was nothing on record to suggest that the continuing association cannot be terminated. Thus, the association should not bar the non-compete, which is otherwise justified”

In the present case CE is on record indicating that they do not intend to sell the residual stake in the next coming years, this is of particular relevance when the agreed non-compete period is only for 3 years. Furthermore if CE decides to sell its residual shareholdings at a later stage and exit completely then it would tantamount to assignment of any participating interests it may have under the Production sharing contract which may in turn prompt cancellation of the Production sharing contract itself or at the least give pre-emptive rights to ONGC. The clause under the PSC entered into by the operating consortium of oil and gas blocks with the government will be triggered when one of the members decides to quit (Cairn Energy’s Legal and Commercial Director Simon Thomson wrote to ONGC, http://www.thehindu.com/business/companies/article631925.ece) thus it seems unlikely that CE will quit as that may nullify the very object of the acquisition. ONGC would have had the right to buy Cairn’s stake (called the pre-emption or the right of first refusal) in case Cairn intends to exit, but in the Cairn-Vedanta deal, Cairn India will continue to hold the stake and operate the Rajasthan oilfields but as and when CE decides to sell all of its stake the re-emption rights will apply. While you are well within your rights to contend that the above argument as not  being valid and warranted, I believe that the above argument is one with merits and in fact could be the game changer should we have a deadlock and embark our journey to the courts.

To counter your contention that CE may have the relevant experience/knowledge and is also in possession of important crucial trade information, It is my submission that such information could only be limited to the acreage allocated to CE or the Target due to national security issues, I believe that an exploration company may not have been allowed to randomly conduct/acquire seismic survey or map any area of its choice in any part of the country drifting away from its allocated acreage.

I am at loss to understand on how CE will be in a position to compete using the information it may have about the allocated acreages which are being acquired under the Sale Purchase Agreement(SDP) of 8th August 2010. If the assets (Acreage/Land) are owned by the PAC, how can CE compete despite being armed with the best of the information? 

PAC has failed to explain in both their previous responses on how possessing knowledge ,experience, or for that matter continuing to operate in the Oil and gas sector and being in possession of sessimic survey etc, can cause irreparable damage particularly in light of the fact that all underlying assets of the Target will be part of the SDP. It is my submission that in as much as all assets are being acquired, the information and knowledge will be no good as such information and knowledge was in respect of the underlying assets, in so far as the argument of CE re-entering as competition as I submitted previously the threat of competition should be relative to the size of the company being acquired and not every thread of possible competition is to be considered, for it is subject to abuse by the Acquirers and the Vendors who may collude to reduce the cost of the acquisition by short changing the minority investors which unfortunately seems to be the issue at hand.

In the present instance, PAC contends that there is real threat of competition from CE, which if not nipped in the bud by paying the non-compete fee will cause irreparable damage to the business being acquired, sadly though there is nothing on record identifying/detailing how CE may be able to “Effectively compete” with the PAC and the Target, In as much there is no real and effective threat of competition, payment of non-compete fee is a mere hogwash and thus is not justified. I further submit that oil and gas sector in India and all other countries in which the Target and its associates have interests and are being acquired are severely regulated and therefore the scope for competition is as good as non-est.

Furthermore paying consideration to stifle competition is a non-competitive practice which is expressly prohibited both by the Indian Contract Act and also the Anti-Competitive Act.

I note in your response dated October 08, 2010 that you rely on the comments made by Mr.Bill Gammell to support your response at Para 4, my interpretation is that it is in total contradiction to what you are trying to ascribe, Mr.Gammell said when asked if Vedanta’s lack of experience in oil business may become a stumbling block to obtain regulator approvals as follows “. Cairn India is about its people and the knowledge resides in these people and not in Cairn Energy Plc,”. Your mention of an eventuality in para 4 has no correlation or relevance, surely you would appreciate it that Mr.Gammell is negating the idea of CE having any additional knowledge than what is already in the domain with the people(staff) and the Target.

The additional submissions in this email coupled with my submissions of 20th September 2010, clearly outline the reasons on why I believe that CE will not/cannot compete with the Acquirer and this is an apt case where SEBI should as directed by SAT in Tata Tea case(2009) intervene, where SAT held “Supposing the fee is paid to a person who cannot compete, the Board(SEBI) may be entitled to say that it is only a device to reduce offer price” and thus no payment of NCF is justified.

Legitamacy of Non-Compete payments:

At the outset I wish to contend that the Takeover Regulations is in direct contravention with an act of Parliament(Indian Contract Act 1872 and S.3 of the Competition act 2002) hence invalid. As per the current case law it is doubtful if a share purchase transaction can be categorized as a sale of business. It is my submission that non-competes are not allowed under the Indian Contract act and therefore do not stand up in any court of law.

The present acquisition is a mere change of shares at the corporate level and is not akin to a sale of business and goodwill and thus does not fall within the purview of the exception to S.27.

You contended that the Takeover provisions are essential for an acquirer to protect his business from competition and also that both the business and legal community supports the PAC in that regard, unfortunately this does not seem to be the consensus, in fact the Takeover Regulations Advisory Committee headed by C Achuthan submitted its report on Takeover Regulations recommending that “The consideration paid for the shares in any form to the selling shareholders and his affiliates, concurrent with the purchase of shares, whether termed as ‘control premium’ or ‘non-compete fees’ or otherwise must be added to the negotiated price per share for the purpose of determining open offer pricing”. Accordingly, the exclusion of non-compete fees from offer price has been proposed to be done away with.

The panel has rightly put its foot down and recommended abolition of room for chicanery that consists in camouflaging 20 per cent of the negotiated price with the promoter (Cairns Energy UK) as non-compete fee which has nothing whatsoever to do with cost of acquisition of controlling interest.

In view of the above, it is contended that the offer price and the non-compete amount payable are not in compliance with the Indian Contract Act and Anti-competition act and it is also submitted that in as much as the Takeover regulations are in contravention with an act of Parliament the same itself stands on weak legs thus SEBI cannot possibly allow it and be the basis of discriminating between shareholders.

Kind Regards

Prashant

Copy to:

1.Adithya.Anand@jmfinancial.in.

2.ask@sebi.gov.in.

3.sebi@sebi.gov.in

4.Amishi.Kampani@jmfinancial.in

5.Jitendra.Gupta@jmfinancial.in

Fortis Healthcare Ltd-A Healthy Prescription

Indian Healhcare: Favourite pick- Fortis Healthcare Limited

People will always get ill- Hospitals will make money for time to come.

 

Health care is a classic defensive sector. No matter how bad the economy is, the argument goes, people still get sick. And they'll pay for medical care before they'll pay for almost anything else.

So far, health care stocks are holding up better than the rest of the market and are the best defensive stocks to hold, however bad the market, economy gets Hospital stocks will make superlative profits for their shareholders.

·         Hospital industry is an important component of the value chain in the Indian Healthcare industry rendering services and recognized as healthcare delivery segment of the healthcare industry.

·         India's rapid growth in the past three years has brought about a 'health transition' in terms of shifting demographics, socio-economic transformations and changes in disease patterns.

·         Healthcare, which is a US$35 billion industry in India, is expected to reach over US$75 billion by 2012 and US$150 billion by 2017.

·         The gap between the present and estimated infrastructure in the healthcare sector in India can be gauged through following indicators.

Particulars	FY2008-09	FY2018 (P)	FY2028 (P)
Additional Beds Required	1.1 million	3.1 million	6 million
Bed/1,000 Population Ratio	0.7 to 1.7	4	5

·         India requires an immediate investment of US$86 billion over the next 15 years to make up for the back-log. In addition to the infrastructure gap, India is also lacking in terms of medical manpower. Currently, India is known to have approximately 6 lakh doctors and 1.60 million nurses. As per the World Health Organization (WHO) guidelines, it translates into a gap of approximately 1.40 million doctors and 2.80 million nurses.

·         The major growth drivers for the sectors are as under:

o    Growing and aging population of India

o    Growing urbanization

o    Rising income levels

o    Increasing burden of chronic diseases

o    Healthcare financing transition

o    Medical value travel (medical tourism)

·         India's cost advantage and explosive growth of private hospitals, equipped with latest technology and skilled healthcare professionals have made it a preferred destination for medical tourism.

Healthcare is one of India’s largest sectors, in terms of revenue and employment, and the sector is expanding rapidly. During the 1990s, Indian healthcare grew at a compound annual rate of 16%. Today the total value of the sector is more than $34 billion. This translates to $34 per capita, or roughly 6% of GDP. By 2012, India’s healthcare sector is projected to grow to nearly $40 billion.

The private sector accounts for more than 80% of total healthcare spending in India. Unless there is a decline in the combined federal and state government deficit, which currently stands at roughly 9%, the opportunity for significantly higher public health spending will be limited.

Growing population and economy

One driver of growth in the healthcare sector is India’s booming population, currently 1.2 billion and increasing at a 2% annual rate. By 2030, India is expected to surpass China as the world’s most populous nation. By 2050, the population is projected to reach 1.6 billion.

This population increase is due in part to a decline in infant mortality, the result of better healthcare facilities and the government’s emphasis on eradicating diseases such as hepatitis and polio among infants. In addition, life expectancy is rapidly approaching the levels of the western world. By 2025, an estimated 189 million Indians will be at least 60 years of age—triple the number in 2004, thanks to greater affluence and better hygiene. The growing elderly population will place an enormous burden on India’s healthcare infrastructure.

The Indian economy, estimated at roughly $1 trillion, is growing in tandem with the population. Goldman Sachs predicts that the Indian economy will expand by at least 5% annually for the next 45 years  and that it will be the only emerging economy to maintain such a robust pace of growth.

Expanding middle class

India traditionally has been a rural, agrarian economy. Nearly three quarters of the population still lives in rural areas, and as of 2004, an estimated 27.5% of Indians were living below the national poverty line. Some 300 million people in India live on less than a dollar a day, and more than 50% of all children are malnourished.

However, India’s thriving economy is driving urbanization and creating an expanding middle class, with more disposable income to spend on healthcare. While per capita income was $620 in 2005, over 150 million Indians have annual incomes of more than $1,000, and many who work in the business services sector earn as much as $20,000 a year.

While this is a fraction of the income that their US peers earn, it is the equivalent of more than $100,000 per year when adjusted for purchasing power parity. More women are entering the workforce as well, further boosting the purchasing power of Indian households. Between 1991 and 2001, the percentage of women increased from 22% to 26% of the workforce, according to the latest Indian government census. Many of these women are highly educated: the ratio of women to men who have a college degree or higher level of education is 40:60.

Thanks to rising income, today at least 50 million Indians can afford to buy Western medicines—a market only 20% smaller than that of the UK. If the economy continues to grow faster than the economies of the developed world, and the literacy rate keeps rising, much of western and southern India will be middle class by 2020.

Rise of disease

Another factor driving the growth of India’s healthcare sector is a rise in both infectious and chronic degenerative diseases.

 While ailments such as poliomyelitis, leprosy, and neonatal tetanus will soon be eliminated, some communicable diseases once thought to be under control, such as dengue fever, viral hepatitis, tuberculosis, malaria, and pneumonia, have returned in force or have developed a stubborn resistance to drugs.

This troubling trend can be attributed in part to substandard housing, inadequate water, sewage and waste management systems, a crumbling public health infrastructure, and increased air travel.

FORTIS HEALTHCARE

Fortis Healthcare will definitely test your patience, but I believe subject to management acting diligently this should be a clear winner over a medium to long term period(12-36 months) and can easily ebe a 4-5bagger. The reason for my belief in FHL has been it has been hyperactive in acquiring stakes in Hospitals across India and the news just in is Fortis acquired QHA Holdings, Hongkong, it is evident from the its recent tussle to acquire Parkway Holdings with Kazanagh and now its announcement to acquire QHA Holdings that the Singh Brothers are trying to make FHL a Pan-Asia healthcare provider.

Since the dismissal of the law suit by Anil Nanda against Escorts Heart Institute and Research Centre has mitigitated the legal risk hanging over its head since its IPO. The company is now free to execute its plans for growing the Escorts network and brand. Fortis has the Largest Chain of NABH accredited hospitals in India. With the Promoters sitting on Huge Cash, the Rights Issue and the profits from the stake sale in Parkways giving some more cash, they can get a lot of Hospital Asset at distressed price and the Company is bound to be Multi Bagger in the years to come.

Background

Fortis Healthcare Limited(FHL) was incorporated in the year 1996. It was founded on the vision of creating an integrated healthcare delivery system. Based in Delhi, FHL, which acquired Escorts Heart Institute and Research Centre Limited in September 2005, has operations in Mauritius, Delhi, Jaipur, Noida, Mohali (Chandigarh), Amritsar, Faridabad, Chennai, Bangalore and Raipur. The company recently announced its first international venture in Mauritius. It currently has a network of 34 hospitals (including 11 satellite/heart command centres). These hospitals include multi specialty hospitals, as well as super-specialty centres providing tertiary and quaternary healthcare to patients in areas such as cardiac care, orthopedics, neurosciences, oncology, renal care, gastroenterology and mother and child care. The hospitals that FHL manages include Fortis La Femme, a “boutique” style hospital that focuses on women’s health and maternity care.

Future Plans

Fortis Healthcare intends to have 40 hospitals with 6000 beds by 2012. Two Green-field hospitals are under-construction, these are:

• a super-speciality hospital in Shalimar Bagh, West Delhi, with specialization in cardiac care, orthopaedics, neuro-sciences, renal sciences, mother and child care and gastroenterology (first phase - 250 beds).
• FIIMBS Medicity- a super-speciality hospital in Gurgaon, with a focus on trauma, oncology, mother and child care, cardiac care, orthopaedics, organ transplants and neuro-sciences (first phase -350 beds)

Further Fortis Healthcare is in negotiations to provide laboratory outsourcing services to UK-based private hospital groups, which would involve clinical samples being flown to India and the results sent back by e-mail.

Performance wise, Fortis has been moving from strength to strength. After the IPO and other fiascos, the company is back to what it does best - making people healthy and feel better.

They are also looking to expand with overseas acquisitions as they see tremendous potential so much so that they recently acquired a strategic investment into the best know Hospital chain group in Mauritius.

All in all, the future looks pretty bright. The way that i see it, the health care business will always remain in vogue more so when Indian lifestyle is becoming more sedentary, india will be the diabetics, heart issues capital of the world in the next two years, it might seem unfair in that I am looking for profits by expecting Indians to fall sick but I think life is never treats you fair!!!!!!!!!

The stock price has been rock solid between 160-175 levels and it looks like it’s forming a strong base at these levels.

Fortis acquires QHA Holdings

Fortis Global Healthcare Holdings has agreed to acquire the healthcare businesses of Hong Kong-listed QHA” for Rs.882 Crores. An agreement to this effect was reached between the two companies on October 8. The acquired businesses comprise a network of over 60 wholly-owned medical centres, over 500 affiliated clinics, over 40 dental and physiotherapy centres and a private nursing agency with a database of over 3,000 nurses

A must have stock that is at the cusp of strong growth..........

Happy Investing

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! 

Bajaj Holdings-Sitting on a Cash reserve of Rs.23,000 Crore

The Bajaj Group is sitting on a cash reserve of Rs 29,000 crore, its patriarch, Mr Rahul Bajaj, said on Saturday.
“The Bajaj Group is sitting on a cash reserve of Rs 29,000 crore. We are a conservative company when it comes to spending money, but we are happy with it,” its patriarch and member of the Rajya Sabha, Mr Rahul Bajaj, told reporters at an event held at th e Indian Merchants’ Chamber (IMC) here.
Of this Rs 29,000 crore, Bajaj Holding company has a cash reserve of Rs 23,000 crore, Mr Bajaj Auto Rs 5-6 crore and Bajaj Finserv Rs 2,000 crore.Click on the link below to access the full report.


http://www.thehindubusinessline.com/businessline/blnus/02091520.htm

Response From JM Financial dated 08 October 2010

Dear Visitors

Please click on the link below to access the response of JM Financial justifying Non Compete Fee, Lets all come together to fight the injustice.

Kind Regards

Prashant


http://issuu.com/raoonnet1/docs/jm_financial_

Bajaj Holdings-TREASURE TROVE

While the stock markets are soaring and the investors are wondering at the pricey valuations of leading companies, one will be surprised to know that there is a treasure trove in the backyard and fortunately the same is trading substantially below its fair value. Here, an ‘argumentative Indian’ may intervene saying “but valuation of a company is so subjective…” Well, not in case of the Company in point , I would say. And you don’t even need to indulge into deep valuation models, profitability analysis or scenario building for finding its real worth. The investment made by the company being covered here in the shares of listed companies alone is many times more valuable than its current market capitalization.

Companies could be purely holding companies, purely investment companies or combination of both. Bajaj Holdings and Investment (BHIL) is a case in point. This is what the company says about itself: "The Company is essentially a holding and investment company focusing on earning income through dividend, interest and gain on investments held." Bajaj Holdings and Investment acts as a holding company for Bajaj Auto and Bajaj Finserv.

In fact, Bajaj Holdings and Investment is known for its mouth-watering treasure of equity shares. BHIL holds shares in the below companies:
Maharashtra Scooters, Bajaj Auto, Bajaj Finserv, Allahabad Bank, Associated Cement Company, Bajaj Electricals, Bajaj Hindustan, Bharat Heavy Electricals, Bharti Airtel, Bharat Forge, Bongaingaon Refinery & Petrochem, Chennai Petroleum Corporation, Crompton Greaves, Electrosteel Castings, Force Motors, Grasim Industries, Gujarat Alkalies, Gujarat Heavy Chemicals, Hindalco Industries, Hindustan Zinc, ICICI Bank, Industrial Finance Corporation of India, Larsen & Toubro, Mahindra & Mahindra, Maruti Suzuki India, Mukand, Mysore Cements, Neyveli Lignite, Patni Computers, Raymond, Reliance Communication, Reliance Industries, Reliance Infrastructure, Shree Cements, Siemens, State Bank of India, Sail, Suzlon Energy, Tata Motors, Tata Steel

In 2007-08, Bajaj Holdings & Investment Limited [(BHIL)] –erstwhile Bajaj Auto Limited [(BAL)] was demerged, whereby its manufacturing undertaking had been transferred to the new Bajaj Auto Limited and its strategic business undertaking consisting of wind farm and financial services business had been vested with Bajaj Finserv Limited.Bajaj Holdings & Investment Limited (‘BHIL’ or ‘the company’)is now essentially an investment company. The company holds 31.49% in Bajaj Auto Limited & 35.64% in Bajaj Finserv Limited, the results of which are consolidated with BHIL.

BHIL is the cream company of the group and is cash rich like Tata Sons or Pilani Investments or the Birla Group having huge investments in its group companies at par values, which have now multiplied several folds by way of rights and bonus issues or convertible debentures, etc. This is quite evident with the number of shares it holds in BAL, Maharashtra Scooters, Bajaj Electricals, Bajaj Hindustan bought at nominal values.

Strong Management: The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two‐wheelers and three‐wheelers),home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company,Bajaj Auto, is ranked as the world's fourth largest two‐ and three‐ wheeler manufacturer and the Bajaj brand is well‐known across several countries in Latin America, Africa, Middle East, South and South East Asia.

1. 9.11 cr bajaj auto shares= 14500 cr
2. 5.22 cr bajaj fins shares= 2800 cr
3. 2 cr icici = 2400 cr
4. 1.65 cr bajaj electric = 500 cr
5. 20% force motors = 300 cr
6. BSE ST EXCHANGE SHARES = 220 cr
7. ICRA = 80 CR
8. FIXED ASSET SEC = 2200 CR
9. OTHER EQ SHARES = 2500 CR
10. MISC LIKE BAJAJ HIND, MAH SCOOTERS, INT, DIV ETC = 1000 CR

Market price 05 October 2010 Rs 852
Market Capitalization Rs 9000 crores
Market value of Assets per share Rs.2650/-
EPS (2009- 10) Rs 76
Dividend per share-2010 Rs 30
Discount of Price to Market value of Investments 60%

Ownership
Category %
Promoter 34.55
FII 9.74
DII 16.77
Others 38.94
Total 100.00
Total Shares (Lakh) 1,060.43

Public" and holding more than 1%

Shareholder No. of Shares Shares as % of
1 LIC 7,560,851 -- 7.13
2 Jaya Hind Investments 5,805,256 -- 5.47
3 ICICI Prudential 5,176,241 -- 4.88
4 Maharashtra Scooters 3,387,036 -- 3.19
5 Sikkim Jansewa 1,829,958 -- 1.73
6 ACACIA Partners 1,403,998 -- 1.32
7 Reliance Capital 1,173,599 -- 1.11

Total- 26,336,939 -- 24.84



A handful of holding and investment companies own blue-chip stocks in bulk. The schedules on investments of Bajaj Holdings and Investment provide details of equity holdings published in the annual report and runs into many pages.

The performance of the company is directly related to the performance of its investments. During the year, income from investments earned by the company was Rs. 8,135 million as against Rs. 2,364 million during the previous year. The equity markets rose during the year under review. Riding upon the opportunities available, the company booked profits on some of its investments.

The profit on sale of investments increased from Rs. 104 million in previous year to Rs. 5,901 million for current year. Standalone results of Profit after tax 7,713 1,960

The company’s assets broadly consist of equity investments, including strategic equity investments and investments in liquid and secured instruments.

With each of the underlying group companies delivering very good results, the consolidated results of Bajaj Holdings &Investment Limited have also been outstanding.

The year 2009-10 has been an excellent year for the company and its associates.
l Stand alone income - Rs. 8,135 million v/s Rs. 2,364 million
2 Stand alone Profit After tax - Rs. 7,713 million v/s Rs. 1,960 million
3 Consolidated Profit After tax - Rs. 13,626 million v/s Rs. 3,030 million

The market value of all the securities it holds works out to approx Rs.27,000 cr. Thus there is hidden wealth way over its equity capital of Rs.101 cr., which is not reflected in the balance sheet. Investors are not aware of the huge wealth locked in this investment company because of which its share price is quoted at a fraction of its intrinsic value.

Against a market price of Rs 852 the market value of investments that this company holds currently works out to approximately Rs 2700 per share This means that an investor is getting these investments most of them blue chip stocks for 1/3rd cost.

Overview

• Market value of investments of Rs 2700 per share available for Rs 852 per share.
• Totally Debt free company with an attractive dividend yield at 3.56.
• Dividend yield captures the downside risk of the stock Also there is no need
to sell investments to pay off dividend since the dividend that it receives can
be distributed directly to the shareholders.

Concerns: Since the margin of safety is huge 2/3rd of its intrinsic value, there are no immediate concerns as such but being an Investment/holdings company with a significant portion of the investment in group companies the market would not give the stock a higher PE.

The above demonstrates that a lot of value remains locked in BHIL, which is not fully reflected in its share price right now. And, one cannot hope to unlock the entire value in such companies in a short while. A retail investor should, however, keep looking for chronically undervalued firms or arbitrage opportunities that can generate healthy returns in the long run

Recommendation: BHIL is an excellent play for the risk adverse investor who wishes to participate into the equity markets with minimum downside risk and stable dividend flow. At current price the stock can be bought for superlative returns over a long term gains

I expect the stock to outperform in the medium to long term achieving its ultimate target of Rs.1500/- in a 6 to 9 month time frame.

Happy Investing

Prashant

Disclaimer

I am NOT an investing professional, instead I am the mule carrying the salt. 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!

Draft Complaint Letter to SEBI- Re: Cairn India:email to be sent to--- sebi@sebi.gov.in

Dear Sir

I am an Investor of Cairn India and am aggrieved by the open offer price being offered to Minority shareholders like me,I believe that by classifying the premium being paid to Cairn Energy as Non compete fee the intention is primarily to reduce the open offer price and thus the overall acquisition price for Vedanta.

That Cairn Energy would continue to stay invested in Cairn India belies its claim of having received non-compete fee from Vedanta and proves that it was only making life that much easier for the acquirer by playing footsie with it.One wonders why. Is this a huge display of naiveté?

In any case, this flies in the face of non-compete fee and indeed in a way gives a lie to such a claim. It is indeed odd to find quarter being given to the one who has been paid a non-compete fee. Non-compete fee and continued interest in the business are incompatible phenomena.

Apart from the chicanery involved in camouflaging a good chunk of the negotiated price as toward non-compete fee, staying put in an acquirer's company albeit in a minor capacity gives the outgoing promoter enough power to constantly breathe down the neck of the acquirer when his purported intention is to break free of him.

It is my contention that in the present case non-compete fee in the context of takeover is a pure hogwash, I also at loss to explain myself on why a savvy businessman would expose himself to the potential danger of being constantly snapped at the heels by the one who has sold out. Even if the claim of non-compete agreement were to be believed, it is a tad ironical that the acquirer would not brook competition from the seller but would stoically put up with his intrusive presence inside the company.

It is my contention that the Non compete fee is a mere whitewash with the intention of depriving and reducing the acquisition for VEDANTA.As a shareholder of Cairn India I oppose any preferential treatment in payment of any fee to the promoters who by the way are not even exiting.

Kind Regards

Back to my Blog

Dear All

It has been ages since I blogged, finally decided its time for me to do where my heart lies sharing info on stocks when no analyst covers them and selling them when they do.

Happy investing

Prashant

Counter letter to JM Financial-Cairn India open offer

To,

Adithya Anand

JM Financial Consultants Private Limited

141, Makers Chambers-III Mumbai

Dated:20^th September 2010

By Email : Adithya.Anand@jmfinancial.in

Dear Adithya

Sub: Open Offer for acquisition of upto 20% of the emerging voting rcaiptal of Cairn India Limited by Vedanta Resources PLC and Twin Star Energy Holdings Ltd collectively(Acquirers) along with Sesa Goa Limited and VC Dempo & Co Ltd.

Ref: SEBI Letter dated September9,2010(Reference No.CFD/DCR/TO/SS/OW-19330/10

Thank you for your email and attachment of 15^th September 2010 wherein you on behalf of Vedanta PLC outlined the legitimacy and basis of payment of non-compete fee under the Takeover regulations and also the Indian contract act.

It is my contention that

1.      The decision to catalog the premium of Rs.50/- being paid to Cairn Energy “CE” as Non-Compete Fee “NCF” is without any merit as CE is no position to compete with the acquirer, and as it was rightly pointed out by Hon’ble SAT in the Tata Tea case(2009) “Supposing the fee is paid to a person who cannot compete, the Board(SEBI) may be entitled to say that it is only a device to reduce offer price”, it is my submission for various reasons outlined below that CE is not in a  position to compete with the acquirer and thus no payment of NCF is justified.

2.      Despite my submissions put forward in this letter that the purpose of NCF in the present transaction is merely to reduce the cost of acquisition, in the event both SEBI and the Acquirers determine that CE can be paid NCF, at the cost of the Minority shareholders then it is my contention that:

a.      S.27 of the Indian Contract act which is an act of Parliament disallows NCF payment unless such payment falls within the ambit of the exception, it is clear that that a regulation by SEBI cannot possibly allow it and thus be a basis of discriminating between shareholders.

b.     Section 3 of the anticompetitive agreement also needs to be considered, given the facts involved in this particular transaction as it causes or is likely to cause an appreciable adverse effect on competition in India.

Before I even set out to provide a detailed response to the arguments put forward in your email of 15^th September 2010, Can I put it to Acquirers that this particular acquisition kind of reeks of bad corporate governance in that the acquirer while distinguishing between minority shareholders’ and promoters has shortchanged minority investors, Why should some shareholders get extra consideration in an M&A? Or to paraphrase George Orwell: "All shareholders are equal. But are some more equal than others?" Why shouldn’t India follow the “all holders rule” which places all shareholders in the same position?

Vedanta has without doubt not only upset the minority shareholders which includes behemoths like LIC and various mutual funds but also the analysts which eventually has consequences for a company's future capital-raising plans particularly when Mr.Anil Agrawal paints a very aggressive picture for Cairn India.

I strongly believe which I will support with cogent reasons that the agreement to pay NCF to the majority shareholders alone is not justified, as it is my contention that NCF is merely being used as a route to reduce the cost of acquisition of Cairn India through a public offer.

Basis for Paying Non-Compete Fee

A.    Point No.1 and 1.a does not warrant a response as they may be mere facts and statements.

B.    In relation to 1.b it is agreed that Cairn Energy “CE” has extensive knowledge and expertise in the oil & gas sector, they may also have access to various seismic surveys, crucial trade information, but such surveys and trade information can only be in relation to all assets being acquired under the Share Purchase Deed dated 15^th August 2010 “SPD” and no doubt will form part of the overall acquisition, you would appreciate it that in almost all SPD’s there are restrictive covenants whereby the seller warrants not to use trade secrets/knowledge to the detriment of the acquirer, that being said there is no logic behind the non compete fee for the value of Cairn, for it derives it value from its production fields and exploration blocks which obviously will include all seismic information, drilling operations, which should automatically be transferred to Vedanta as a result of this transaction, Oil & Gas are commodities which is highly regulated by the Governments of various countries mentioned in your email and more particularly in India, Customers buying such commodities cannot be stolen/poached, therefore there is no question of a situation where by CE can use such information to their advantage, while it may be argued that there is a spectre of competition, the threat of competition should be relative to the size of the company being acquired and not every thread of possible competition is to be considered. In as much there is no real and substantial competition payment of NCF to CE alone is not justified.

Furthermore Mr.Bill Gamell, Chairman of CE and Cairn India in his interview to CNBC TV18 (http://www.moneycontrol.com/news/business/not-withdrawingindia-cairn-energy_478457.html) said “What I would like to say is that Cairn Energy PLC could end up having sold only 40% and still be 20% holder or maybe in the 10-20% position. But we are very pleased to have a continuous association, we are not withdrawing from India”, Mr.Gamell further stated “We have agreed not to compete as a company against Cairn India’s interest in India. As a shareholder in Cairn India, we continue to be very much involved and it is an association which we hope to continue over the next coming years” 

The above being on record it is clear that CE does not intend to sell the residual stake in the near future and it is common sense that no shareholder and particularly CE with between 10-20% valued at approximately between $1.5-3 billion depending on the ultimate stake it will hold post the transaction will do anything to jeopardize its own interests or take up a private venture with conflicting interests and, thus there is no possibility of competition to warrant a NCF.

It is also pertinent to note that if CE decides to sell its residual shareholdings at a later stage then it would tantamount to assignment of any participating interests it may have under the Production sharing contract which may inurn prompt cancellation of the Production sharing contract itself or at the least give pre-emptive rights to ONGC. The clause under the PSC entered into by the operating consortium of oil and gas blocks with the government will be triggered when one of the members decides to quit, thus it seems unlikely that CE will quit as that may nullify the very object of the acquisition.

Further more as rightly pointed out by Mr.Bill Gamell in his interview to The Hindu on the 15^th September 2010 “Cairn India is about its people and their expertise. The knowledge and expertise resides in these people and not in Cairn Energy Plc” hence for the reasons outlined above NCF is not justified.

C.    I further submit that oil and gas sector in India and all other countries in which Cairn India and associates have interests and being acquired are severely regulated and therefore the scope for competition is as good as non-est. In relation to any future NELP’s it my submission that how much ever knowledge or expertise a prospective company may have, unless it is willing to pay the top dollar exploration blocks are not allotted, further more as outlined in my response to your point B, CE has placed it on record that it does not in the near future intend to sell its residual stake this should be considered in light of the Non-compete period is only for a 3 year period and thus it defies logic when you argue that CE will pose direct competition, surely you would appreciate that even if CE decides to do something as illogical as that then it will have to compete from scratch in the process ensuring that the value of the stake they hold is diminished.

D.   My submissions in Pt. B & C clearly outline the reasons on why I believe that CE will not/cannot compete with the Acquirer and this is an apt case where SEBI should as directed by SAT in Tata Tea case(2009) intervene, where SAT held “Supposing the fee is paid to a person who cannot compete, the Board(SEBI) may be entitled to say that it is only a device to reduce offer price”

In light of the above submissions it is most respectfully submitted that the proposed payment of NCF is not justified, if the acquirer still believes that it is in the interest of the minority shareholders then the acquirers should be brave enough to make it a democratic process wherein they should ask all shareholders to vote and express their opinion by a postal ballot.

Legitamacy if Non-Compete payments:

At the outset I wish to clarify that the Takeover Regulations is in direct contravention with an act of Parliament(Indian Contract Act 1872 and S.3 of the Competition act 2002) hence invalid.

Under Indian law, non-compete clauses are not a means to dissuade competition. Section 27 of the Contract Act expressly states that "every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is to that extent void".

This stringent rule is subject to a single exception:

"One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits, so long as the buyer or any person deriving title to the good-will from him, carries on a like business therein; provided that such limits appear to the court reasonable."

The Indian Contract Act restricts the enforceability of non-compete covenants unless the seller is selling the entire business along with goodwill. As per case law, it is questionable, if a share purchase transaction can be categorized as a sale of business. It is my submission that non-competes are not allowed under the Indian Contract act and therefore do not stand up in any court of law and hence they should not be allowed at all. While it is an accepted norm under the Takeover Regulations to provide non-compete fees, the position today has to be looked at little differently in light of the Indian Contract act and also the Competition Act 2002.

The Indian law against restraint of trade and profession is peculiar in that it is deliberately absolute unlike many other jurisdictions like the UK which allows a reasonable restraint of trade and profession.

Although SAT overruled SEBI in Tata Tea Case(2009), quoting section 27 of the Act, but instead of relying on the Indian commentary, SAT relied on the UK commentary.

The difference in the law/interpretation meant that section 27 was not interpreted properly. In other words, on a correct interpretation of the Indian Contract Act, the SEBI regulation allowing non-compete payments itself stands on weak legs. If the law made by Parliament disallows non-compete payments, it is clear that a regulation by SEBI cannot possibly allow it and be the basis of discriminating between shareholders, and furthermore the present acquisition is a mere change of shares at the corporate level and is not akin to a sale of business and goodwill and thus does not fall within the purview of the exception to S.27, and whether the exception will apply when the seller does not completely exit the Company i.e; continues to retain stake is a matter that introduces greater complexity as it definitely does not evidence that there has been a sale of goodwill at all in order for the exception to S.27 to apply.

Further more Section 3 of the Anti-Competition Act,2002 prohibits agreements which restrict the production, supply, distribution, acquisition or control of goods or provision of services, which cause or are likely to cause an appreciable adverse effect on competition within India

When Mr.Gamell Chairman of CE and Cairn India himself states that “Cairn India is about its people and their expertise. The knowledge and expertise resides in these people and not in Cairn Energy Plc," when asked if Vedanta's lack of experience in Oil and Gas business may become a stumbling block to obtain regulatory approvals and when the Indian Contract act which is an act of Parliament expressly prohibits any NCF payments then I fail to understand the rationale for accepting and agreeing to make the NCF by the Parties to the acquisition.

In View of the above, it is contended that the offer price and the non-compete amount payable are not in compliance with the Indian Contract Act and Anti-competition act and it is also submitted that in as much as the Takeover regulations are in contravention with an act of Parliament the same itself stands on weak legs thus SEBI cannot possibly allow it and be the basis of discriminating between shareholders.

Kind Regards

PRASHANT Rao

Copy to

1. SEBI --   Sebi@sebi.gov.in

2. Lakshmi Lakshmanan--  Lakshmi.Lakshmanan@jmfinancial.in

18% Returns

Dear Guests

You will be pleased to note that the gamut of stocks mentioned on this board on 3rd July 2007 have on an average appreciated by 18% in the past two months, conviction pays and informed decisions can create wealth.

I would be pleased to receive any comments and suggestions from all the guests.

I will shortly post a detailed analysis about each stock' potential to be a Multibagger.

Regards

Prashant

18% Returns

Dear Guests

You will be pleased to note that the gamut of stocks mentioned on this board on 3rd July 2007 have on an average appreciated by 18% in the past two months, conviction pays and informed decisions can create wealth.

I would be pleased to receive any comments and suggestions from all the guests.

I will shortly post a detailed analysis of why the stocks mentioned in this board will in fact become Multibaggers.

Regards

Prashant