How does this work? If promoters don't get the extra shares then the 10% they have diluted effectively becomes 16%. The share price, and importantly the price of the futures, should adjust only 6% more no? We'll have to wait and see.
Archive for February, 2008
Reliance Power Bonus at 3:5
So the bonus is here. 3:5 it seems, so if you own five shares, you will soon get 3 more. When? I don't know, they haven't announced the record date yet.
Comparing Dhoni With Mukesh Ambani, Why Stop There?
Economic Times proves that Statistics is like a bikini: it hides more than it reveals.
Dhoni, they say, gets paid more than Mukesh Ambani.
The chief executive officer of the Men-In-Blue Mahendra Singh Dhoni, who has been bagged for Rs 6 crore for the domestic cricket league, has overtaken Mukesh Ambani, chief of India’s largest private sector company, in terms of compensation.Yes, they have disclaimed that this does not include dividends that Mukesh Ambani receives or the other endorsement/team revenue that Dhoni gets [these figures are not comparable]. To give you an idea of what is not included, Ambani's dividend from RIL alone, through his 70 odd crore shares, is nearly 800 cr. per year. I doubt Dhoni makes that much from his endorsements - but considering the price of "Speed" petrol that he endorses, he just might. Kidding.The comparison is not apt but on a per hour basis Dhoni will be paid more than Mr Ambani for the duration of the tournament. ...
The way Ambani is paid less than Dhoni - Dhoni gets 6 cr. for 44 days of the tournament (24 hours per day, do the math) - comes to 56K per hour.
MDA, on the other hand, gets a paltry 36K per hour from his 30 cr. salary (minus dividends and all of course) for a 365 day year, with 24 hours a day.
Lots of issues: Dhoni has to live the rest of the year too you know. Plus Mukesh bhai has the power to move his salary up when he wants. And he can issue a gazillion warrants to himself which at current market prices are about er..12,000 cr. in value. And Dhoni gets high compensation for a fairly short career, in comparison with M. But forget that.
And to be honest, I think this is just an eye catching headline and newspapers routinely do this to grab attention. Yet, I would say if we're getting dramatic, why not some more?
- Priya Kumar charges "1.5-2 lakh for a 2-3 hour session", which is about 75K an hour, making her earn more than Dhoni or Mukesh Ambani.
- Pinky Anand, a lawyer, supposedly charged Rs. 2 lakh per hour for a case study.
- Dr. Sudhanshu Bhattacharya charges 3 lakh per operation, which I'd assume runs between 1 and 2 hours. That's around 1.5-3 lakh per hour.
- Shah Rukh Khan charged Rs. 1 crore per episode of Kaun Banega Crorepati, making the hourly rate of 1 crore unbeatable by the cricketer or the oil-petrochem-retail baron.
I think if we get things down to the nanosecond we might find people who are paid gazillion rupees when extrapolated to an hourly charge.
Just having some fun. I'm sure the Eco Times guys were as well.
ABXes Hitting New Lows
The Markit ABX indices, which are based on asset backed securities, are trading at new lows.
This is the graph for the ABX based on loans (rated AAA!) made in the second half of 2007. This sorta means people are willing to pay 65 cents to the dollar for such loans. So much for AAA.
Note that without too much drama the indices of nearly all the tranches are at new lows. If this stays so, there are more writedowns coming.
India is going to see a lot of funds flowing out. Means dollar will rise. See it's already above Rs. 40. What can you do? Maybe buy the small IT companies that haven't hedged. Who? Patni? Mindtree? Someone at low valuations with hedge numbers low enough to warrant interest. Ideas?
Drop In Internet Trading Volumes as Markets Crash
Economic Times: Internet-based trading turnover of NSE falls.
Pretty lousy, huh?
Turnover from internet-based trading at the National Stock Exchange (NSE) plunged to a daily average of Rs 1,648 crore between February 1 and February 8, compared with Rs 3,450 crore in January, Rs 3,587 crore in December and Rs 4,417 crore in November in the exchange’s cash market segment.It now accounts for just 12% of NSE’s total cash turnover, compared with a high of 24% in November last year. Stock brokers providing internet trading facility agree that the turnover has taken a big hit in the past few weeks. They, however, hope the situation will improve after the market gained some ground last week.
Pretty lousy, huh?
Comments Are Now Moderated Due To Spam
Some random character from one site - and I won't name the site because it will give them free publicity - is spamming the comments section on my posts. Therefore I have been forced to add comment moderation and will ruthlessly reject all comments that are spam. Sorry for the inconvenience to all regulars and commenters; I do hope that Mr. Spammer will go away.
Spam includes only those comments that are unrelated to the content of the post.
Subprime In A Lighter Vein
My dear friend Mohit sent me this incredible presentation on Subprime.
And then this absolutely hilarious explanation:
Reliance Power Bonus Still Yields No Value
8 comments
Written on February 18th, 2008 by Deepak Shenoy
Categories: Commentary, IPO, ReliancePower
Categories: Commentary, IPO, ReliancePower
I've changed this post in accordance with extremely recent news that the bonus is likely to be 1:3 or 1:5. I moved the P/E down to 14 from 15, and readjusted share prices. Slightly higher rate of return, but the net effect remains the same.
Amit commented in my last RPOWER post:
You are ignoring the fact that of the total market cap, investors will hold 19% instead of 10%. This amounts to adjusting the issue price downwards without explicitly saying so. the market performance has actually forced them to part with a larger slice at the same cash inflow.Firstly I must say I agree with Amit that the promoters are letting go of some stake. But having said that, let's look at the math.
They currently have 226 crore shares, with 22.8 cr. shares held by the public. They have about 12,000 cr. of cash (10,000 from the IPO, and 2000 from the promoters) That's worth about Rs. 53 per share.
Now if they issue 1 bonus share for every three held, to only the public, that's another 7.6 cr. shares. So they will have around 234 cr. share. The cash they have is now worth about Rs. 51.2 per share.
Their prospects - let's say they were to make Rs. 15,000 cr. in 2015. (NTPC, which has the same capacity as RPOWER will have in 2016, makes 7000 cr. so let's give it a good double of that) That's an EPS of Rs. 64 per share. Take a 14 P/E: That's about Rs. 900 per share. From Rs. 400 today, that's a gain of Rs. 500 in 7 years. But for 400 shares today you should get the 1:3 bonus, effectively a price of Rs. 300 per share. Gains then are Rs. 600 per share.
On a percentage basis, this is a 17% return, compounded and annualised.
And that is at DOUBLE the profit of NTPC today (with the same capacity) and assuming no further dilution. (Promoters have the right to buy 10% more capital based on warrants, which, looking at promoters recently, is bound to happen)
So you are getting, in an optimistic scenario, a 17% annualised return. This is still quite optimistic and does not sound like great value to me. In comparison, buying NTPC which will have some three times RPOWER's capacity may be better, because at similar P/E you will get five times the return.
Tough scenario: 10 P/E, 10,000 cr. profit in 2015. Market price then: Rs. 420 per share after 7 years. 5% return.
There are other methods of valuation - a value based on replacement cost per megawatt etc. On these parameters, Reliance Power's 2015 valuation is just a little higher than today's rates (around Rs. 430).
Let's say, someone just sold you a Maruti Swift saying it was a Mercedes, and you paid 25 lakhs. Now they gave you back 5 lakhs. Does that make happier? You still paid 20 lakhs for a Maruti Swift, no?
But look at the momentum. Stock's up at 416 today, 8%. They say that when you take drugs, you first get the euphoria and then the big depressions. This market is just like a drug - there's a downside and we may know it, but as long as we keep getting shots, we're euphoric.
Stocks At Face Value Rs. 1 Only. Umm. Why?
Categories: Commentary
This is a very boring legislation and is of no interest to me. First it will not allow splits at all, and splits are efficient ways of keeping shares affordable. Second, bonus issues get more common which are PAINFUL for taxation calculations (new shares, price of 0, have to maintain multiple lots etc.) Finally, this introduces a whole new cost to nearly all companies and brings no added benefit.
For you as an investor this doesn't mean much in terms of value either.
Posted in Commentary