Is Narendra Murkumbi trying for a backdoor listing of Renuka Energy?

(Full Disclosure:I have shares of Renuka Sugars in my personal and family portfolio)

Ravindra Trading (BSE Scrip Code:504341) is one of the many scrips in BSE which are under suspension.

In Oct 2008, Narendra Murkumbi, promoter of Shree Renuka Sugars made an open offer for the compay.The offer was for  Rs.10/share.

Subsequent to the offer, the control of the company passed on from the original promoters (the Somani group) to Narendra Murkumbi who now holds 73.85% of the stake.

Once Narendra Murkumbi took over, the company got the kiss of life and it started trading coal.

In 2012, the company earned around 1.18 Crores as profits and gave a Rs. 1 dividend to its shareholders.

On Aug 20, 2012, the Board of Directors met and granted in-principle approval for the amalgamation of Shree Renuka Urja Pvt Ltd (under incorporation) and Shree Renuka Energy Limited into the company.

Now, Shree Renuka Energy is a subsdiary of Renuka Sugars.It is setting up a of 3×350 MW Coal Based thermal power plant at village  Vantamuri, in Hukkeri Taluk, in Belgaum District , in Karnataka.

It is headed by J Suresh Kumar (former CFO of Lanco Infratech) who oversaw Lanco’s A$750 million buy of Australia’s Griffin Coal.

While the power plant is still awaiting various permissions and will take time to come up,it appears clear to me that eventually  Ravindra Energy will be renamed as Renuka Energy and investors will be tapped for funds.

Smart moves, Mr.Murkumbi !

Why trying to buy low,sell high doesn’t work

This advice seems to contradict the data. After all, there is a positive relationship between equity valuations–whether measured against earnings or dividends–and future returns. The higher the dividend yield in one year the stronger the expected returns over the following five years.

 

After all, more than a century of data show this to be true. Sure, the statistical significance could be stronger, but the general tendency is clear.

 

And if you had bought U.S. equities when price-to-dividend ratios were below 14, you’d have generated annual total returns of more than 10% a year during the following ten years, three times higher than had you bought when the price-to-dividend ratio was above 35.

 

This seems a pretty good investment rule–buy when cheap; sell when dear.

Except it’s not.

 

The problem with this data analysis, argues Professor Dimson, is that it is done with hindsight. Using the full century and more of data, we know how things turned out during the whole of that period. We know what was cheap and what was dear.

 

The LBS researchers ran the same analysis, buy low sell high, over the whole of the past century, but using only data prior to the point in time they were looking at (a rolling analysis). In effect, they were looking at history as if at each point they were in the same position as contemporaneous investors, with only knowledge of past data and not what was to come.

 

In that case, timing the markets based on mean reversion in all cases causes investors to underperform those who merely stay in equities. Trying to time the market by selling high and buying low leads to worse returns than methods like dollar cost averaging or just buy and hold.

-from WSJ

A cautionary tale

The old Wall Street adage is “Buy on Rumors, Sell on News”

Many people have lost money following this adage.

Take for example, Ramsarup Industries.In June 2010, a rumor spread that it is a takeover candidate for Arcelor Mittal.The stock shot up to around Rs.80.85.

There was no basis for that rumor.As truth came out and the dust settled, the stock drifted downwards and is now selling at Rs.4.5 !!

A sad thought

We cannot imagine an Apple without Steve Jobs.The two are so closely inter-linked that it is difficult to separate the founder from the company.

When the founder passes away, the company and hence the stock price are drastically affected. (as can be seen in Apple’s case )

There are many examples in the Indian context.The recent one being Amitabh Parekh of Parekh Aluminex.The stock has got hammered beyond shape after the unexpected demise of its charismatic founder.

If you cast an eye (not an evil one !) over your portfolio, you will find many companies which are closely interlinked with the founder.It is difficult to visualize that these companies can succeed and grow without them.

A sad but sobering thought.