Tata Tele … Up 10% is not a race to zero

Tata Teleservices (Maharashtra) Limited

Tata Tele has -ve equity value. It decides to sell its parts (mobile ops, broadband & fixedline and enterprise biz). This way they don’t go bankrupt but instead sell ops which have decent EBITDA (but overall losses due to huge debt & depreciation). By keeping debt with themselves and selling ops for free (mobile ops to Airtel) they can avoid having to fire employees and incur even more costs (apparently 7-8000cr!). CEO looks like a hero because he at least saved his mobile op employees from getting laid-off en masse.

What about debt? Parent pays it off anyway since its on its books but they no more want to run the mobile biz. Parent, Tata Sons, looks like doing a huge favour to its subsidiary (and its debt holders…any haircut or bonds paid at par?).

Tata Tele Assets = -ve equity + huge debt

Airtel pays paltry 2000Cr to buy its mobile ops. The call it cash free-debt free transaction. Airtel gets 4cr new subscribers and a functioning mobile company with a +ve Ebitda. Airtel is happy!

Any amount received from Tata Comm for entereprise biz and Tata Sky for its broadband biz will be used to reduce debt. Equity guys stand last in line. What does the equity guy get?

If parent pays off ‘huge debt’ (~30k+8k =38k Cr) you are still left with a –ve equity company. Why should the stock be going up?? It should be racing towards zero, no?

Disclaimer: no positions in this stock, just academic interest.







Jenburkt Pharma Buyback

Because the promoter is not participating in the buyback, the 1.77L stocks available to large shareholders is split among 11.2L shareholders only. Assume 35% of these guys apply for the buyback (assumption being large shareholders would like to play along with promoters given promoters are not doing this to pocket the gains). If the market stays at current 455 or so levels then you make 12% or if it goes say to 430 u make 8.5% pre-tax in 1-2 months.


For a small shareholders the numbers are not good looking and its a definite pass. The obvious risks are:

(1) Large shareholders participate in higher proportions

(2) Price ends lot lower than 450’s

Given buybacks are very popular and promoters almost always participate, this is an interesting opportunity where large shareholders have an edge. Given the lack of interest in this buyback the chances of low participation or higher yield are good.

Warren Buffett Advice

1. Invest in Yourself First

As a star investor, Buffett knows where to find true value, and the first place he tells students to look for it is within. “Investing in yourself is the best thing you can do — anything that improves your own talents,” Buffett said in a 2009 interview on “Good Morning America.”

Investing in yourself is one of the only investments over which you can have total control and can never lose. “If you have true talent yourself, and you have maximized your talent, you have a terrific asset,” he said.

2. Develop Integrity

At a 1998 lecture at the University of Florida School of Business, he asked the students in the audience to think of someone in their class who had the makings of success, such that the audience members would want to get 10 percent of that person’s earnings for the rest of their lives. “You would probably pick the one you responded the best to, the one who has the leadership qualities, the one who is able to get other people to carry out their interests,” said Buffett. “That would be the person who is generous, honest and who gave credit to other people for their own ideas,” — in short, the person who exhibited integrity.

3. Break Bad Habits While You’re Young

Buffett said bad habits often hold people back: “I see people with these self-destructive behavior patterns at my age or even 20 years younger, and they really are entrapped by them.”

For those who are young, however, it is still relatively easy to identify those poor qualities and work to improve them, Buffett told the students at University of Florida: “You can get rid of it a lot easier at your age than at my age, because most behaviors are habitual. The chains of habit are too light to be felt until they are too heavy to be broken.” Everyday habits can help successful people push harder and get further than others.

4. Know Your Strengths and Capitalize on Them

Buffett told Georgia State students in 2001 that it’s important to know your limits and not stray too far from them. In fact, Buffett’s investment philosophy is centered on putting his money where his knowledge is.

“You don’t have to be an expert on everything, but knowing where the perimeter of that circle of what you know and what you don’t know is, and staying inside of it is all important,” he said. “Tom Watson Sr., who started IBM, said in his book, he said, ‘I’m no genius. But I’m smart in spots, and I stay around those spots.’ And, you know that is the key. So if I understand a few things and stick in that arena, I’ll do OK.”

5. Don’t Risk What You Have and Need for What You Don’t

Buffett told University of Florida students that in his decades as an investor he has sometimes seen businesses put themselves at risk to chase after bigger and bigger profits, and has seen people do that at the individual level as well. “If you risk something that is important to you for something that is unimportant to you, it just doesn’t make sense,” he said. “I don’t care if the odds you succeed are 99 to 1 or 1,000 to 1 that you succeed.”

6. Work at a Job You Love

“I get to work in a job that I love, but I have always worked at a job that I loved,” Buffett said of his investing career. It isn’t just about the money for him, either: “I loved it just as much when I thought it was a big deal to make $1,000.”

“You really should take a job that if you were independently wealthy that would be the job you would take,” Buffett told University of Florida students. “You will learn something, you will be excited about, and you will jump out of bed. You can’t miss. … When you get out of here take a job you love, not a job you think will look good on your resume. You ought to find something you like.”

7. Be a Nice Person

“Be a nice person,” Buffett once advised a young MBA student. “It’s so simple that it’s almost too obvious to notice. Look around at the people you like. Isn’t it a logical assumption that if you like traits in other people, then other people would like you if you developed those same traits?”

8. Take Care of Your Body and Mind

Buffett often shared this fable, as quoted in his biography, “The Snowball: Warren Buffett and the Business of Life,” asking students to imagine if a genie came to him at 16 and offered him the car of his dreams, but the catch was that it would also be the last car Buffett could ever own. The car would have to last a lifetime, and to make sure that happened, he said, “I would read the manual about five times. I would always keep it garaged. If there was the least little dent or scratch, I’d have it fixed right away because I wouldn’t want it rusting. I would baby that car, because it would have to last a lifetime.”

Then Buffett related the fable back to the students: “That’s exactly the position you are in concerning your mind and body. You only get one mind and one body. And it’s got to last a lifetime. Now, it’s very easy to let them ride for many years. But if you don’t take care of that mind and that body, they’ll be a wreck 40 years later, just like the car would be.

“It’s what you do right now, today, that determines how your mind and body will operate 10, 20, and 30 years from now,” he said.

9. Find a Mentor

Buffett’s success is due in large part to his own particular set of talents, drives and knowledge. But it was the help of a mentor, Benjamin Graham, that set Buffett on the investment philosophy that he grew upon to build a multibillion-dollar empire. Buffett read Graham’s book and applied to Columbia University, where Graham taught. He developed a relationship that led to Buffett getting a job offer from Graham after graduation.

“I really had a quarter of a century of experience with a marvelous man,” Buffett said of the years spent working with his mentor. Not only did Graham guide Buffett’s career, “but the human side was just as impressive. He was a generous man,” Buffett said.

10. Work for and Surround Yourself With People You Admire

In addition to Graham, Buffett has always sought to work with talented and hard-working people. “You know, people always say, ‘Well who should I go to work for when I get out then?’ … The real thing to do is to get going for some institution or individual that you admire,” Buffett advised Georgia State students in a 2001 speech.

“It’s better to hang out with people better than you,” Buffett said on another occasion in response to a high school student’s request for advice on how to be successful. “Pick out associates whose behavior is better than yours and you’ll drift in that direction.”

11. Face Your Fears

“I used to be afraid of public speaking, and I realized that I’d have to do that someday,” Buffett told a group of MBA students, according to Business Insider. Knowing he couldn’t avoid this task forever, no matter how unsavory it might seem to him, Buffett was proactive: “I do have one diploma I display from Dale Carnegie’s public speaking course, and it only cost me $100.” Choosing to face what he was afraid of led Buffett to make a huge change, and today his speeches are listened to and quoted by millions.

12. Jealously Guard Your Time

Bill Gates said that one of the biggest lessons he’s learned from Buffett is to be careful with his time. “There are only 24 hours in everyone’s day. Warren has a keen sense of this. He doesn’t let his calendar get filled up with useless meetings,” Gates once wrote. The best part of time is that even the poorest new college graduate has as much of this resource as the world’s richest men, and how it’s used can help push you to success.

13. Avoid Credit Cards

“The biggest suggestion I have is to avoid credit cards,” Buffett said, according to CNBC. “Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke. … So if I had one piece of advice for young people generally it would be to just avoid credit cards.”

14. Seize Opportunities While You Can

“Big opportunities in life have to be seized,” Buffett said in that Georgia State address. “We don’t do very many things, but when we get the chance to do something that’s right and big, we’ve got to do it. And even to do it in a small scale is just as big a mistake almost as not doing it at all.

“You’ve really got to grab them when they come, because you’re not going to get 500 great opportunities.”

From GobankingRates.com: Warren Buffett’s 14 Best Tips for the Class of 2015

Source:  http://www.reviewjournal.com/business/money/warren-buffett-s-14-best-tips-the-class-2015

REC – Rural Electrification Corp


Annual NPAT ~ Rs 5,500 Cr
Market Cap – INR 22,000 Cr
P/E ~ 4
Book Value ~ 283
Stock Price = 223
Dividend Yld = 4.8%
ROE = 20+% for past 5 years
GNPA = 1% (my estimate ~ 2000 Cr)

Business Model
Raise money via bonds/loans and lend to companies in the Power sector. The NIM is the profit.

Risk (similar to banks)

  • Borrower defaults
  • Power sector demand for loan met by an alternate cheaper channel (dont know what?)
  • When u are lending huge sums where one leg (borrowing via bonds) is a commitment and the other (lending to clients) is on credit then the road is slippery. Unlike a brokerage the risk of borrower default sits with u, the person who lends u expects his dollar back with interest. Historical NPA can be a good guide to judge risk mgmt but its no guarantee for future. GNPA warrant close watch.

Case for investment?
History shows the company is profitable from ROE and GNPA levels. Its a PSU so that s*cks for the price action. Its a boring but a very profitable company. Because its constantly profitable its book value keeps climbing and becomes a natural pusher of price upwards. (A similar company, SJVN , has the same book value dynamics. It took 5yrs before the company went up 50% in 1 yr while paying 5% div yld thru the years to finally catch up with its book value).Even if GNPA doubles (or quadruples) , one year profit can take care of the expense. The firm has the ability to take multiple hits. Its so big and with a clear mandate that it will be the lender of choice for clients. I think its better to place some lazy money that will give u decent 5% yld and upside if and when investors start investing in this company. Patience should give good payoff.



India – Politics

In response to someone who asked whats my view on a particular political event. Best to avoid listening or tracking politics … like markets it will self correct. Just avoid getting entangled in it else u will have to experience its emotional ride. Build a moat for your future.

Noida Toll Bridge Company Limited – In the center of political storm

Owns a toll bridge with little capex requirement and a growing stream of revenue from toll collections. The locals outraged about why a company is earning profit when it could cut prices and make life easier for the public. Political sentiments are high so farmers, local RWA and politicians jump in to make matters murky. The case is now in the courts and Delhi government is to opine on it too. All this mess aside, we care about the business.

Can the toll collection be impacted for next few years (5yrs)?

Doesn’t seems so till 2031 but then rates revision may not be close to 6% annually.

Will the dividends be impacted?

Doubt it as the firm has little use of it. The bridge is its only real asset and its complete.

Can they change the agreement?

Dont have specifics but I seriously doubt you can change the legal language without both parties agreeing to it. One has to seriously arm-twist ILFS (indirect owner … 26% share) to change the terms. Why would they lessen their profit.

Can the strike be indefinite or frequent?

Very unlikely, people use it to go to office and earn bread.

What has changed?

Not very much unless ILFS gives in or political pressures are such that some CAG like audit happens and they find discrepancies in cost calcs involved in building the bridge which can change the discussion to tax fraud etc..

My Play?

Stay long and watch.

Disclaimer: Long