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Sunday, May 21, 2006
Sun TV - Business-Today
He is one of the youngest resident dollar billionaires in India. When Sun TV, his flagship, listed on the stock markets on April 24, it ended the day with a market capitalisation of Rs 10,089 crore; the value of Maran's 90 per cent share: Rs 9,080 crore. Few would have thought this likely two decades ago, when, in keeping with tradition, Maran-elder son of late Murasoli Maran and grandson of DMK chief M. Karunanidhi-was an active student leader in Chennai. But fate had other things in store for him. Following an MBA degree from the University of Scranton in the US, he joined his family's publication business. In 1993, he promoted Sun TV, a Tamil entertainment channel, and followed this up by launching a new channel or publication every year since. The Sun network now has a bouquet of 14 Tamil, Kannada, Malayali and Telugu television channels, a lucrative cable network, four fm radio channels, two Tamil newspapers and four Tamil magazines. Insiders say Maran depends on his uncanny business sense while taking decisions and can be very ruthless when implementing them. Sun TV's business model is simple: it allocates slots to content producers for a fee, and retains for itself only a small share of advertising slots. If producers don't deliver the desired TRP ratings, the programme is terminated. Says Hansraj Saxena, VP, Programming, Sun TV: "Kalanithi Maran has to be admired for being proactive and for his ability to take swift decisions."
He's had his brush with controversies, too. There have been allegations that he owes his success to his family's political muscle. A leading south-based newspaper recently alleged that he tried using brother Dayanidhi Maran's clout as Union Telecom Minister to demand a one-third share for himself in the Tata-Star TV direct to home venture. Maran denies the allegation. What's next on the agenda? Sun TV has a DTH licence and is keen to enter this segment. Then again, Maran may at a future date list his other television assets-the market value of his company is based only on six television and one FM radio channels. If that happens, expect him to rise further up the list of the super rich.
Youth For Equality
Contact Numbers
Youth4Equality
Blog: http://youthforequality.blogspot.com
E-mail: youth4equality@gmail.com
Phone: 9871441919, 9810754510, 9818650242, 9871011415, 9899194084, 9810141853, 9899657532
Delhi University
E-mail: youth4justice@gmail.com , kapil.socialwork@gmail.com
Phone: 09818066041
Why are the equity markets falling?
Markets go up. Markets go down. Now they are going down? Why?
A. Well, why did stock markets rise - globally? Let's see…there were many reasons.
Firstly, the Iraq war and the fear of SARS made investors out of equity assets till March, 2003 – all over the world. So, by April 2003 when SARS faded away and the Iraq war was "won" money came pouring back to equity markets – globally.
Low interest rates around the world and continuing consumer spending in USA allowed the companies worldwide to lower finance charges and increase profits. When profits increase (when they are not expected to) investors' turn optimistic and bid share prices up – globally.
Also, with low interest rates many hedge funds were able to play the arbitrage game: they could borrow in US$ at low rates of interest and then invest that money anywhere in the world where they expected to get better returns. Some of that money came into emerging markets like Brazil, China, and India.
B. Why did the Indian stock market rise? For many reasons.
Firstly, because of money flows from the FII's (see the 3 points listed above). The FII's invested about US$ 10 billion in the past 12 months. That is about as much money that UTI has under management. Imagine the power of adding one UTI to the Indian stock market: it created a demand and supply imbalance. The demand for shares was more than the supply of shares. When demand is more than supply, prices increase – that is basic economics.
Part of this is the additional demand of shares from foreign investors who are buying Indian stocks outside India. No one knows that amount. No one tracks it. The foreign investors gain exposure to the Indian market via "Participatory Notes" which is captured in the statistics. The foreign investors use this P Note route as they do not wish to register with SEBI nor get involved with the tax implications in India. There were frequent changes in policy and attempts to control this but, most likely, with the sale of government shares and an expected increase in the supply of new shares the rationale and reason to retain the P Note route was considered to be a good decision.
But there were also real reasons to support some of the rise in share prices. Company earnings were good, the economy was doing well, the ruling NDA-led government was expected to win the elections, etc. These are fundamental factors that generally support the increase in share prices.
C. Now why are share prices collapsing?
Well, they are collapsing globally. Interest rates are increasing in the USA and this makes it difficult for many hedge funds to borrow cheap and buy shares around the world or even in their home countries. Before the Indian markets fell, Brazil and China were already down between 20% and 30% from their recent peaks. In Indian terms, this would mean that from the peak BSE-30 Index of 6,100 levels, the market should have been between 4,300 and 4,900 to be "equal" to the fall of Brazil and China - assuming that there is no specific India-event that affects the perception of local and foreign investors.
Investors are getting increasingly concerned about geo-political risk and changes in government, not only in India, but also in Europe and USA in their up-coming elections. And they have decided to book their profits and reduced their exposure to equities for a while.
India is suffering now from the after-effects of relying on one kind of buyer: the foreigner. While the foreigner was buying, everyone was happy and telling us how India was shining. What people should have started to worry about was the effects of these same buyers (whether on the Indian stock exchanges or via P Notes) turning sellers. And we know, or should have learnt by now, that every buyer one day becomes a seller: that is the law of markets and market cycles. Now the foreigner is selling, and the markets are tumbling because there are no buyers to absorb all that foreign selling.
India is also suffering from "the shock" of the NDA not winning. That is an India-specific event, not linked to other global events (like China wishing to slow down its economy, USA raising interest rates, the leader of Iraq's Governing Council blown up in a car bomb attack). No pre-election poll predicted it, no equity strategist expected it and even the winning party did not expect it!
So, who should I blame?
- The stock exchanges for having a stock exchange?
- The foreigner for buying, and for now selling?
Local speculators who exaggerate market movements on the upswing (by buying ahead of the foreigners) and on the downturn (by selling ahead of the foreigners)
The US central bank for indicating that it could raise interest rates?
The previous government for making us believe we were shining and happy that the rising Index was an approval meter of their policies?
The Left Parties for saying what they have always been saying (which is why they are called "Left")?
The pollsters for not predicting the election results?
The new PM, Sonia Gandhi, for winning?
The people who voted her in?
We love to blame others, so the list above is an indicative one which you can add to and modify depending on whether you are pro-Sonia , pro-BJP, or pro-whoever. Or should we, instead, take this 12-month sharp rise and fall in the markets as yet another lesson (having gone through many before, including the recent tech bubble of 2000) that investing in shares is a risky business and one must be disciplined about it or find a disciplined advisor to make you a decent rate of return as opposed to gambling away on the stock market?
Oh, yes, before I end with these thoughts from a hotel room, another word of advice. The market will rise again - with your money or without it. I don't know when and I don't' know by how much or for how long. But I know it will. So, if you had discipline and kept your fear and greed and other emotions away from your decision-making process, you would invest (not speculate) while others are selling. I know I am investing.GlaxoSmithKline Pharma: Buy
Fresh exposures can be considered in the GlaxoSmithKline Pharma (GSK), which trades at about Rs 1,100. Over the past seven trading sessions, the stock has shed 23 per cent, compared to the 13-per cent fall in the benchmark indices.
We are of the view that the sharp correction is a good opportunity to enter the stock.
However, given the current market conditions, we believe that it is important for investors to temper their return expectations and also buy the stock in small quantity; exposures may be increased should there be a further fall in price linked to broad market weakness.
Though GSK has registered a strong showing in the first quarter of the current calendar, the performance may not be sustainable, given the VAT-related issues that prevailed in the year-ago period. However, growth may be of a more steady nature in the quarters to follow.
GSK's focus on its power brands and its decreasing dependence on drugs under the ambit of price control has paid rich dividends, lending an upward bias to margins.
That, along with its strategy of in-licensing and bringing in molecules from the stable of its global parent, should be the key thrust areas in the medium term.
Recently, GSK has also exited the animal healthcare business, which is reflective of its intent to focus on the core pharma business.
GSK may also decide to adopt the same course of action with the fine chemicals business.
The divestiture from these businesses should provide GSK with the financial muscle to aggressively pursue inorganic growth opportunities, put through another round of buy back or reward shareholders with a handsome dividend payout.
After having consistently commanded a valuation in excess of 30 times forward earnings, the current collapse in price has led to the stock trading at about 24 times its expected per-share earnings for CY07.
The fall in price appears inexplicable, given that the fundamental story has not altered. Buy with a medium-term perspective.
9 commandments for investors
Markets will test the patience of investors and the nerves of the traders. Prudential ICICI Mutual recommends that investors remember the following basic principles:
Markets are neither cheap nor at bubble valuations. They are between fair value and expensive valuation.
The valuations are supported by the optimism about sustained above average future growth and the continuous flow of cash from local as well as global investors.
Markets will become volatile with the opposing forces of liquidity and valuation coming into play.
Markets will reward investors and punish traders.
It is difficult to predict the market except for the long run.
Asset allocation (a fair balance between risky and non risky assets) is the key to withstanding market volatility
Markets are unlikely to melt down like the TMT sector in the year 2000 as this time the doubt is with the valuations and not with the business model.
You should be a buyer in the market if you are under-invested in equity and you should be a seller if you are over-invested in equity.
Regular investment/systematic investment will be the most appropriate way to invest in the equity marketUnity Infraprojects: Avoid
Investors can avoid subscribing to the initial public offer from construction player Unity Infraprojects (Unity). The offer appears ambitiously priced even after factoring in revenue flows from conversion of orders on hand.
Infrastructure spending has prompted a number of players in this space to tap the capital market and ramp up the equity base. The construction activity in the country is likely to ensure that even small players get a share of the business. However, the ability of such companies to compete with established players and execute projects across geographies will determine their long-term growth prospects.
At the price band of Rs 651-732, Unity is likely to list at 30-34 times its expected earnings for 2006-07 on a post-issue basis. While a few established players command this valuation, similar-sized peers such as Valecha Engineering still trade at a significant discount to Unity's offer price.
The sector is also likely to witness more players entering the market in the near future. This throws open a number of options for investors looking for exposure in the infrastructure space.
Objects of issue
Unity derives a chunk of its revenues from building varied civil structures. It is also into other infrastructure works such as roads, bridges and irrigation projects. The company proposes to use the proceeds of the issue to procure capital equipment, repay debt and invest in build-operate-transfer (BOT) projects. The expanded equity base will be Rs 13 crore.
Lacking an edge
At Rs 1,391 crore, Unity's order-book is about five times the 2004-05 revenues. About 50 per cent of the orders are in the civil construction space. Transportation and irrigation constitute 18 per cent and 32 per cent of the orders respectively. Unity is also geographically less diversified with 80 per cent of its projects in Maharashtra.
While irrigation projects can bring reasonable margins, civil structuring and roadways are unlikely to fetch high returns.
In the civil structure segment, Unity may not be able to gain advantage over the unorganised market unless it is able to carve itself as an EPC (engineering, procurement and construction) contractor. The company now does not have in-house designing capability and cannot be classified as an integrated player.
Quite a few small companies that came up with offers recently have niche businesses that set them apart from the rest. While Tantia Construction has an edge in railway infrastructure, Sadbhav Engineering had gained entry into the road BOT space in consortium with Gammon India. As of now Unity Infraprojects does not have any such distinguishing feature to command a high valuation.
The company has, however, entered into a joint venture with IVRCL Infrastructures and Projects for a lift irrigation project in Maharashtra. This may aid in qualifying for similar projects.
Unity's venture into Andhra Pradesh is also a positive as the State has a high budget allocation for irrigation projects. It may have to, however, compete with bigger players such as Nagarjuna Constructions.
Joint ventures
Apart from the understanding with IVRCL, Unity does not have joint venture with frontline companies to gain entry into areas such as BOT projects. In its tie-up with Patel Engineering the latter's holding is now just one per cent. Unity's plan to enter high-potential project segments may depend on its ability to forge ties with technically qualified players.
Financials
With revenues of Rs 222 crore as of December 2005, Unity Infraprojects saw a jump in operating profit margins from 8 to 13.5 per cent.
If the company is able to move away from fixed price contracts to projects with escalation clauses, it may be able to sustain margins. Forty per cent of the revenues derived up to December 2005 was from fixed-price contracts.
Offer details: The offer is open from May 19 to 24. DSP Merrill Lynch is the lead manager to this issue.
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