Thursday, September 25, 2008

Balaji Telefilms – Smoke on the water

I had put a earlier post on Balaji Telefilms commenting on the divorce with the Star Group and how things could play out in terms of the Star stake sale.

Last few days I have been seeing a flurry of news items on the company. It started with news article stating that the company is planning to setup its own Hindi channel. So from a content provider it would make its transition to become a general entertainment channel. The divorce with Star clearly made sense as they would start competing in the same space. However this is speculation which the company has denied

It was followed by news reports that Balaji is taking over 9x channel from Indrani and Peter Mukhreja.

Too many news items swirling around. Clearly there is some fire smouldering somewhere which is generating all this smoke.

Plan to monitor this and analyse the business a little more.

Wednesday, September 17, 2008

Its Darkest before Dawn

"The Door's" wonderful song " The End" comes to my mind when we look at the current gloom hanging over the world

This is the end
Beautiful friend
This is the end
My only friend, the end

Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
I'll never look into your eyes...again

Can you picture what will be
So limitless and free
Desperately in need...of some...stranger's hand
In a...desperate land
The west is the best
The west is the best
Get here, and we'll do the rest .......... :-)

Ironically Jim Morisson wrote this a few decades back and I m sure Wall street wasnt there on this mind when he wrote this.

But on a serious note the seeds of a bull market are planted in the abyss of a bear market. There is some great value that is today available on the streets. It is darkest before dawn.

Sunday, September 7, 2008

The 3C’s of Investing

When I went passed out of my B School and stepped into the corporate world, I left behind the golden rule of marketing that Mr Kotler’s blue coloured marketing management book listed down. The 4P’s of marketing. By the time I was passing out the 5th P was getting added to it called Packaging.

I moved to the 3C’s of marketing in the real world.

1) Convince
2) Confuse
3) Corrupt

It was simple and effective.

Convince - You start with a product and try convincing the customer on how great the product is and better than the competition. Like how u r shampoo will make hair more silkier and beautiful. If this doesn’t work then move to the next stage …

Confuse – If refuses to be convinced, confuse him. He needs to buy your product bcos it has ZPTO, AFGO, Booster technology, Oxidation technology, Salt crystals etc. Most customers will get adequately confused to buy the product. If this doesn’t works move to Step 3.

Corrupt – Buy 1 get 1 free, get 30% more, buy shampoo get toothpaste free, Rs 10 off etc. Economists will call it incentives. Problem is when everybody is working on corrupting the customer.

Well the 3C’s works as well in the investing domain. Companies / Management go thru the same cycle marketing their stock.

Convince - Managements will make some nice presentations and give the relevant sound bites to convince investors on the great future of the business and the company. If this doesn’t convince investors to chase the stock, move to step 2.

Confuse - Announce increase in FII limits and a few takeovers across the world. ( It doesn’t matter some of these are shell companies owned by the promoters sister in law). Float about 15 subsidiaries so it is really tough to figure out whether any of those takeovers are covering for the cost of capital.

Announce a few large scale diversification into current hot sectors or flavour of the month - Telecom licenses, real estate, infrastructure. If this doesn’t work move to Step 3

Corrupt - Announce a stock split. Thrown in a bonus issue as a bonus. And if all this doesn’t work announce a share buyback DLF, Sasken, Mastek, Reliance Infrastructure …….. This one works for sure.

Wednesday, September 3, 2008

Arbitrage that went right - ICICI PRU FMP Series 36 Plan A – Growth

I had in my earlier post written about an arbitrage that didn’t work out ( Dabur Pharma) as I had thought it through. Listing down one that did go right.

Arbitrage opportunities tend to get thrown up around panic selloffs. Around the third week of Jan markets corrected significantly from the highs of the 20,000 peak to around the 16500 – 17500 range.

I encountered this arbitrage opportunity around that time. ICICI Pru had a Fixed Maturity Plan listed on the BSE with a 18 month tenure. The tenure for the plan comes to a closure in the month of November 08. It was a pure play debt product with no exposure to the equity markets and would give a annualised return of 8-9% for investors like most FMP’s would.

It had a NAV of around 10.6 at that time and it was trading in the 9.22-9.23 range on the BSE. It was clearly additional return available at virtually no risk. Though it is relatively illiquid managed to buy some position in it.

I exited my position last week in the 11.02-11.03 range managing a absolute return of 19% and annualised return of 25% post brokerage. The NAV has gone up to Rs11.2 but I choose to exit early and not wait for redemption to avoid higher taxation rates. The markets in the meantime have gone down by about 14% in the same time frame.

The importance in such a transaction is to have patience and be comfortable with seeing NAV rise at a supersonic speed of Rs 0.02 every week :-) and wait for the gap between the market price and intrinsic value narrowing down.

It doesn’t appear “sexy and hot” as the next potential ten bagger but I like opportunities like these.