Key takeaways from Lemon Tree Hotels DRHP

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Dropbox – Lemon Tree Hotels


Liquidity Suckers!

I have compiled list of companies planning to raise funds from the market through various means and the amount they are looking to raise. As you can see from the table below, $11bn+ worth of paper supply can potentially come in the market over next one year as shareholder approval is valid for one year and the timeline for promoters to bring down their shareholding to 75% within 3 years of listing. This is just the secondary markets transactions.

QIP/Rights issue
HDFC Bank upto 15500crs
excluding HDFC investment
HDFC upto 13000crs
Tata Steel upto 12800crs
Indian Bank upto 7000crs
Bank of Baroda upto 6000crs
DLF upto 4150crs (assuming 240/share)
upto 17.30crs shares
Bank of India upto 3000crs
Himadri Specialty upto 1000crs
JM Financial upto 650crs
Hatsun Agro 900crs
Orient Cement upto 500crs
Deepak Nitrite upto 150crs
NCC upto 550crs
Zuari Agro Chem upto 400crs
Majesco upto 250crs
Punjab Chemicals upto 150crs
Rasandik upto 40crs
Potential OFS  Amount Promoter stake over 75%
ICICI Pru Life 3245crs at CMP 395 5.71%
Inox Wind 350crs at CMP 148 10.62%
Sheela Foam 890crs at CMP 1713 10.68%
Endurance Tech 1390crs at CMP 1320 7.50%
L&T Infotech 1650crs at CMP 1068 9.03%
L&T Technologies 1480crs at CMP 1000 14.51%


Key takeaways from Sandhar Tech DRHP

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Dropbox – Sandhar Tech

Uday Kotak’s Letter to Shareholders

Key takeaways:

1) At the peak of global financial crisis, Fareed Zakaria asked me a question at the WEF in Davos – What is a good bank for the future? My answer was, a good bank needs 3 human qualities : prudence, simplicity and humility.

2) Unlike 2009 which was a V-shaped capital markets led recovery, I believe that this time around capital markets may not fund the real sector companies easily but instead fund the banks who may have to hold the can for the real sector. It is here that banks have to ask themselves whether their core business is lending or taking equity risks for debt rates of return.

3) On interest rates, I believe there will be a gradual reduction in cost of funds and lending rates. Reduction of deposit rates of say one year below 8% is a challenge. Particularly so because rates in small savings schemes continue to be above 8%.

4) On the other hand, bond markets are more benign and they will to some extent, enable recapitalization of banking system as a counter force to credit stress.

5) Three significant areas of opportunity:
   i) Digital
   ii) Affluent customers
   iii) Non urban areas (i.e any place outside top 50 cities)

6) New Banks : How will they affect us? They will increase the pace of competition for talent and customers. However, going by our experience of last 10 years, banking, particularly on the retail side, is much long haul than we expected when we began our journey. With increasing complexity, I wonder whether we would have plunged into banking today as decisively as we did 10 years ago.

Finolex Industries- Growth cum Deleveraging play

You may have a look at the profile and financials of the co’ here 

Going forward, this is what the management says about FY14.

In FY13, other expenses shot up by approx. 100crs and finance cost came down by 24crs. Major portion of the other expenses was towards settlement of derivative losses.

Q4 of FY13 indicates how FY14 might shape up. Company ended Q4 with an EPS of Rs 6.39. So if we assume raw-material prices to remain stable and interest cost to fall by 15-18crs, Finolex may end up FY14 with an EPS of around Rs 18 and with the co’ paying out 50% of its earnings as dividend, ROE shoots up to 24%. So despite the sharp run up in the stock price, there is scope for another 30%+ price appreciation. Not considering sale of land parcel.     

Arshiya International: Connecting Business Model & Leverage

This post is basically a writeup to make sense of the significant debt of Arshiya. The common view among Investors is “I like the business model of the company but not the stock due to high leverage”.

Let’s start with the business model of Arshiya. One can refer to this excellent presentation by the company on the same. The company plans to open FTWZ across different parts of the country i.e In Panvel (West), Khurja (North), Nagpur (Central) and Chennai (South). Panvel FTWZ is partly operational (5 warehouses) and expected to be fully operational by June’13. Khurja FTWZ is partly operational (3 warehouses) and expected to be fully operational by the end of FY14. Company is in the process of acquiring land in Nagpur.

Arshiya’s stock price has not gone anywhere this year as earnings have been stable for four consecutive quarters (around Rs 35crs) as Depreciation and Interest expenses increased more than the EBIDTA. But one should look at the QoQ growth in EBIDTA and it has grown by around 16% for past two quarters and margins have grown from 26% to 29%. FTWZs have strong EBIDTA margins of 70%+. Once Panvel and Khurja FTWZs are fully operational, the overall margins can shoot to 35%+ which will ensure earnings increasing more than depreciation and interest expenses. Management is trying to contain expenses wherever possible. For example, they entered into lease agreement with GATX for rakes and conversion of rupee loan of Rs 300crs into dollar loan which acts as a natural hedge since income from FTWZ are in foreign currencies. Link for Q2FY13 Investor updates.

One of the concerns of the investors have been the high equity dilution (23%) recently through issuance of warrants to promoters. The fact that the issuance is not to an ‘outsider’ and the return on equity isn’t diluted mean the concern is unwarranted. Promoters have already converted 22.5% of the total issue. Its a case of promoters being more optimistic on its business than shareholders. Enterprise value stands at Rs 3335 crs with Equity (at current price of Rs 122) being Rs 885 crs (assuming full conversion of warrants) and Debt of Rs 2450 crs. My sense is incremental debt should be minimal going forward as funds raised through warrants and cash generated from ongoing projects once fully operationalized should be sufficient enough for capex of Nagpur FTWZ.

I think at 4x FY14 earnings, debt is discounted more than required. Considering the business model, competitive advantage and growth, Arshiya’s stock should possibly trade atleast 6x earnings or 1x P/BV for a 16% ROE going forward assuming no additional dilution. Such stocks generally does well in a bull market and declining interest rates scenario which hopefully will pan out over the next one year.

Kenneth Andrade – Peter Lynch of India?

Updated as of 29th June,2014

One can argue whether he deserves the tag or not or its too early to attach the tag. Hence the Question mark in the title.

Kenneth manages popular fund IDFC Premier Fund. Premier Fund’s AUM has grown from around 200crs in 2006 to around 4400crs currently. Fund has delivered 20%+ CAGR since launch and 15%+ over last 3 years. Had he not went overboard on PSU stocks in 2012, his fund would have been in top quartile now.

Let’s look at some of the portfolio’s holdings. I tried to find out the avg. purchase price through bulk deals and avg. qtrly price found earliest in the shareholding pattern.

Strides Arcolab -» Had first acquired 4.38 lac shares @ 63 in Feb’09. Almost 15 bagger now. Exited.

Bata India -» Avg. price of 100 during the Dec’08 Qtr. That’s around 12 bagger in 5 and half years!

Page Industries -» Avg. Price of 400 during the June’07 Qtr. 18.5x now. 10%+ dividend yield on top of that.

Kaveri Seeds -» Avg. price of Rs 50 (adjusted for split). Around 14.5x since first entered.

VST Industries -» Acquired 2.22 lac shares @ 575 during Oct’10. More than 3x now. Exited.

Blue Dart Express -» Acquired 1.82% stake at an avg. price of 650 during the June’08 quarter. 6x now.

MRF ->> Avg. Price of Rs 10,000 during the Sept’12 Qtr. 2.3x now.

Coromandel International ->> Avg. Price of Rs 75 (adjusted for split) during Sept-Dec’08 Qtr. Around 3.5x now.

Doubled his returns in Hexaware and e-clerx. Both exited.

Other holdings like Asian Paints,GSK Consumer and STFC have delivered steady returns.Exited.

Pantaloon and IRB Infra are among the few stocks which didn’t played out for the fund.

P.S. Fine. We will attach the tag after the next bear market!

Disclosure: Have vested interest in the fund.