Losers from the TATA's 1 LAKH CAR..

A lot has been discussed about the One Lakh Rs Car launched by Tatas recently and I dont plan to add to the chatter. Yes it is nice, pathbreaking, and fantastic job by tatas. A lot of auto ancillary companies could gain more revenues if this car takes off big time. And before going gung ho, we must realise that in early months of commercial launch, the demand for this car could vastly exceed supply and Tatas may have to ramp up capacities big time before it becomes a big car category to be reckoned with commercially (for auto spare/ancillary suppliers).

Now assuming that Tatas ramp up capacities, and break even by say 2009-2010, there are two companies which may obviously lose in the process.

They both are listed companies. They are - Bajaj Auto and Maruthi Suzuki.

Both companies will face heat from the launch of this car. Not immediately but in near future. I wonder if the stock price of both these companies are factoring this threat in any manner...

PS - It is entirely possible that with rising fuel prices worldwide, Tatas find a lucrative export market for this car and maybe then lot of this car is diverted to be sold abroad. That is also entirely possible. if we look at the category of small cars gaining overall market share (At expenses of Limousines and SUVs) then it may be a win win situation for all Indian car makers. Dont rule out that...

Why I am bearish on Infosys (@ Rs 1585 , as on 13 Jan 2008) ...

Infy has posted yet another quarter numbers.One could not but observe that the media is less and less interested in Infy results as it was in past. Come on, this is not 2000 or 2003, this is 2008 and India is not just about Software Programmers and Computer Geeks (like me.. LOL), India is also about making world's cheapest Car (thank you Tatas).

This is my Take on Infosys (the scrip) at these valuations :


The Big picture -the US Slowdown/recession which is no longer a distant threat but a real possibility. What follows it is a near certain rate cut and resulting drop in US Dollar. Add to it the heavy BFSI exposure, the very sector hit by sub prime problems. Now with rising asset inflation, US financial biggies are likely to be out of favour with market (even with great rate cut). All in all the scenario is going to be hurtful for all Tech outsources from India. The argument that Tech outsourcing will only increase with US slowdown worked well in 2001-02 when US Dollar was rising against rupee and Indian wages were low. Today, it is exact reverse- US Dollar is falling and Indian Techies are demanding more wages. And add to it 2009 when taxation rates may start going up (like ESOPs, Chidu may take a harsh stance on Tech cos and make them pay higher taxes now).

The Infy Picture - Given this big picture, every tech outsourcer that has over 60% US exposure and heavy BFSI exposure should get hit - not in terms of existing revenues and profits, but in terms of new revenues/growth. Infy qualifies, so do many tech companies. But the problem unique to Infy is that Infy is enjoying highest profit margins compared to its pees, pointing to the fact that they will face greatest pressures when they expand in lower margin markets. This is why Infy is most likely to geet hurt more than say a TCS . TCS has quite some non US low margin market business, and Wipro has a low margin Non Tech business. Wipro has a greater Telecom exposure. TCS does business in low margin Domestic IT sector. Infy does not do much of such things (relatively) , because they are lower ROCE businesses. Till now. When the recession begins and US goes slowdown mode, where will Infy pick new markets? Only from low margin /low ROCE markets. Infy is not having both, so it boils to how come Infy enjoy further growth with same high profit margins. Infy will grow, but the growth will be at much lesser profitability. The current valuation of Infy does not factor it IMHO.

Must also add this - Among the big three (TCS, Infy and Wipro), Infy is unique in having high float - so any big ticket acquisition would happen slower in Infy (because of equity dilution hesitancy that exists with all institutionally owned companies) . Whereas a TCS with support from Tata & Sons may do more daring acquisions and a Wipro with non Tech business could expand to other sectors (like say FMCG).And any bear market will hurt Infy more since the buyback support that exists in Wipro and TCS doesnt exist in Infy.

So, I think infy should fall another 15-25% to reflect this reality. But will it happen? Infy has fallen so much since Feb 2007 . Did any expert stand out on Feb 15 2007 and say that Infy has a big downside from that day?

Relaunching My Blog...

So Here I am posting after an years gap. And this is my new year resolution, to post regularly on this blog henceforth. No talk only action. Here we go.....

Height of Absurdity...

I cannot but be shocked reading this news. So would be others...

This illustrates the kind of uneducated, unsensitised, highly ignorant nature of the law enforcing people of our country...

What more to say? Read On.



Patna: In a criminal case that has got even the judge stumped, a four-year-old boy has been named an accused on charges of assaulting a woman and attempting to molest her.

The child, Raj Kumar, has been charged under sections 323, 352, 504 and 554 of the Indian Penal Code in a Patna court.The case has put the court in a dilemma, wondering how to proceed in the case.

Under Indian law, the police cannot file a criminal case against a child below seven years of age.

Others accused in the case include his father Kedar Prasad, his mother and another man, Hira Prasad, and his wife.

Judicial Magistrate Saheb Kausher at the Patna civil court on Monday ordered an inquiry to ascertain the age of Raj.

The court was surprised and shocked upon learning about the boy's age.

"Before hearing the case it was ordered that his age be ascertained," an official said.

The court failed to understand how a four-year-old could be made an accused in a criminal case.
[Link]

Who Gets Hutch - Followup - 1

So a lot has happened in 2 weeks since Hutch Sale party began... the original tale was one of two suitors - the Cash Rich, Regulatorily restrained Vodafone vs the Cash Constrained but regulatorily Empowered RComm.

The other originally interested players(Maxis , Oracomm etc) have found that the stakes are too big and risks are too high, so dropped out.

We still have the possibility of a real Goliath like Verizon, Deutche Telecom and like getting into the game at late stage. But leaving that aside, there is a new party interested namely Essar. Essar is doing what it is best at - messing up the whole party like a typical inebriated hothead, trying to break a few glasses.

Trust me, never ever underestimate the ability of Essars to spoil the party. Essars themselves dont have a bone of chance getting the 3rd biggest mobile phone operator of India. Essars are the same industrial house who have the dubious distinction of being one of the First Big Indian corporates to default on Foreign Currency Loans (in 1999 i think).

But 33% stake in Hutch India (got thru slew of unplanned, yet totally lucky godsent consolidation deals), is what puts Essar in commanding position - a bit like what the Left parties with just 50 MPs are doing to the UPA Govt... they know that they can drag the Hutch Promoters at Hong Kong to Courts and drag it for years... so....

Essar will do what it is best at - play the spoiler.

Essar however will see reason and cow down and be reasonable, if they are given a really fantastic compensation . That means, valuing Hutch India in excess of 20 billion dollars... say 24 billion dollars would mean 8 Billion $ for Essars that would be good enough for em to give up and leave the party. Such a deal would mean a ready cash inflow of 30000 crore plus Rs, which should fire the group into any kind of unreasonable projects, w.o getting hurt.

The question is - Will it make any business sense for any buyer to pay such high amounts (in excess of 20 billion dollars) to what is after all just the third biggest mobile phone operator ?

The Answer is - No for all buyers. May be for "one buyer" alone.

But Business sense alone never made business decisions.... Everyone knows that.

So Who will get Hutch???

A great Sale is going on in India... well that should interest everyone, espically our mall obsessed, shopping obsessed Middle Class Urban Indians... but wait, the sale is not about some home product or hot electronic gizmo, but an entire company , called Hutch.

Hutchitson Whampoa is trying to sell its stake in its Indian Telecom operations - Hutchitson Essar Teleholdings and there are atleast 4 bidders for it, says grapevine.

The interest in Hutch is so obvious... India has 1100 million people... and we are adding 20 million people every year to our population. And of, them, just 150 million people are owning mobile phones. And our mobile phone tariffs are among lowest in the world. Yet, with all these limitations, leading Telco players like Bharti and Reliance Infocomm are making 30-40% pre tax profit margins... and does it now explain why there is such a great rush to get Hutch India at any cost...

Now , the whole thing appears to boil down to 5 possible players interested in Hutch India - they are 1) Europe Telco Giant Vodafone 2)India's No 2 Telco Player Rel Com 3) Malaysia's Maxis and 4) Orascom-Qatar Telecom 5) A Clutch of Foreign Private Equity Players

The fair value of Hutch is evaluated at around 12-14 billion dollars. So the bidder who is ready to bid the craziest value for Hutch is the one going to get it.

And of the 5, it appears that Maxis is the weakest bidder, since Maxis itself is having a market value of only 14-15 billion US$... so there is no way a bidder can make a bid for a company greater than its own value.

Orascom - Qatar is a strange creature - Orascom is also having market value of same 10-20 Billion US$ Range... but Qatar parternship may bring extra Oil Money (though Qatar is not exactly the richest Oil Kingdom of Gulf)... but that also brings the concerns of Islamic Axis among the Security Ayothollas of the New Delhi Establishment... this makes me discount their bid... i dont think Orascom will be able to make it up.

This leaves with 3 other players - Rel Com, Vodafone and PE Players.

Foreign Private Equity players, representing a clutch (or a tie up) of Dollar Rich Financial Institutions can definitely make say a 20 billion dollar bid on Hutch India and even bag it. But the problem is one of getting regulatory clearance. Because of the 74% Limit on foreigners owning equity in Telecom, PE Players cannot on their own make through a bid. Also, Regulatory bodies (read Govt of India /UPA Politicians/ Dayanidhi Maran) can object to the bid on the grounds of the bidder having no expertise in the Telecom Sector. This makes me rule out PE Players winning the bid.

So this leaves two players - Vodafone and Reliance Communications. Vodafone being a foreign player, would hv to bid for Hutchitson Whampoa's stake alone (leaving the Essar minority stake intact) and so they must consider living in a partnership with Essar after winning bid. Reliance Communications being an Indian player, can bid for 100% of the Hutch-Essar operations.

The winner would be the one who makes the most outrageous bid for Hutch India. Something in the order of 20 billion dollars? Maybe......

Then who will get it? Remember that as of today, the Market Value of Reliance Communications is around 21 billion dollars. So Reliance can at most go upto paying 20 billion dollars (not in cash but in debt/equity/deferred equity) to Hutch.

But Vodafone is a global giant, they are having a market value of 200 plus billion dollars, they make a EBITA of several billion dollars... so clearly Vodafone is the Goliath that is fighting with Reliance the David...

But who will get the cake? It all depends on how desperate Vodafone is in getting into Indian Market. If they are ready to pay any price , they will surely get hutch.

But if Vodafone is going to pay only the deserving price, then Reliance Communication will bag Hutch...
Reliance may go upto 20 billion dollars in paying for Hutch... of course, it would also mean a near 100% equity dilution... but Rel Comm is justified in bidding high for Hutch , since becomming India's Biggest Telco Player is worth paying the price (the synergies will kick in with efficient opreation management and integration and will mean unprecedented profits a few years from now, enough to justify the massive equity dilution that may come by Rel Comm's high bid for Hutch India).

Rel Communication does have it all going... they have a very friendly Minister of Telecom (Dayanidhi Maran) who could also help to ease the whole process....

But all provided, Vodafone is not ready to make a crazy bid. If they make, then nothing can help Reliance in this bidding.

Soft Launching My Blog

So at last i found some time to remember that i have planned to launch my own blog... it has been three months since i have moved upon my idea and here it is ... I am soft launching my blog.

I am primarily looking forward to publish my blog as a kind of diary-cum commentary on current affairs - it would be the world viewed from my eyes... I would primarily focus on topics related geographically to India/TN/Chennai and to subjects concerning Investment, Finance, Stock Markets, Public Policies and occasionally some views on personalities.

I dont plan to make it any kind of structured blog, but let me call the next 1 year - say till end 2007 as beta phase, when this would be just a place where i put forth my views.

So there it goes... and let me start it now with a greeting to all the Gods that rule my life.

May God help me through all my endeavours in putting my views on this blog of mine.

My Blog

I have created my blog to record my ideas and experiences and views on a variety of topics. Would take some time to create some decent blog, so till then please wait. Expect some discussions on economics, finance, investing and like.