Category: Excerpts

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Is “talking your book” wrong?

Some people claim that “talking your book” about a stock which you own or are short is wrong. It isn’t.
Talking your book isn’t the same as front running or manipulation.

Front running is the abuse of privileged information for personal gain. Manipulation is the intentional dissemination of false information.

Investors have greater incentives to get stocks right than journalists or sell-side analysts, so their research is more valuable.
Investors’ best research is typically about the stocks they know most about – the stocks they have positions in.

“Talking your book” is legal and widespread. Even before Seeking Alpha, many fund managers – including the most prominent and widely respected – talked their book in interviews on CNBC and other TV shows, pitched their ideas to Barron’s and other publications in the hope they’d be published, and publicized their research about their highest conviction positions in conference presentations (think HLF) or by email.-from Seeking Alpha

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Corporate Governance issues at IndiaBulls Group

A reader sent in this email:

Indiabulls promoters have split their company and I see some corporate governance issue in Indiabulls Wholesale. Indiabulls Wholesale was owning 100 % Indiabulls Technology where 1200+ employees are working. In FY 2013, revenue was 46 crores and FY 2014 revenue should be more than 100 crores going by their team business ramp up.

Without informing shareholders, Indiabulls Wholesale has divested the IB Technology in Q1 quarter. It raises below question which is a serious corporte governance issue.

1. The Indibulls Technology buyer has not been disclosed. If the buyer is Saurab Mittal or Rajiv Rattan, then it is a serious fraud.

2. Valuation at which it has been sold is not disclosed. Please be noted that the Indiabulls Technology is growing at a scorching pace and for a technical start up company, initial years will not have much profit and revenue will be increasing in multifold. So when we value the company, we need to go by the future revenue growth and their order book.

Going by this, even in the worst case valuation, Indiabulls Technology should be deserving 400 crores. But the promoters have sold it under the carpet for their own benefit or internal settlement with some body.

3. Indiabulls Technology is a major revenue contributor and whenever they have sold this, it should have been announced to exchange. It should not appear as one of the line item in their quarterly result. It is present as item # 4 under standalone quarterly result declaration of Indiabulls Wholesale.

When news floated about the promoters splitting up their empire, Indiabulls WholeSale went down drastically whereas other group companied held on to their price. This indicates that people are aware that IB Technology is going out of Indiabulls Wholesale and insiders offloaded their price.

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A good time to get rid of some stocks

Source: R Balakrishnan

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The perils of investing in PE Realty Funds

A group of NRI investors have filed a case in the Supreme Court of Mauritius against ICICI Venture Funds Management Company accusing the PE firm of misleading them while raising a real estate fund that eventually underperformed while they had been promised a certain return.
Around 69 investors, mostly from the United Arab Emirates and Gulf Cooperation Council (GCC) countries, had invested around $34.7 million in the $220-million Dynamic India Fund (DIF) III since 2005, after being allegedly promised a return of 25%. Instead their investments are now under water.

The investors claim that the fund manager did not keep them informed about the subsequent performance of the fund or about the quality of assets in which the fund had invested. Further, the aggrieved investors allege there was huge delay in completion of projects about which they were also kept in the dark.

When the fund’s tenure came to an end, they were told that their investments were valued below par.

At that stage ICICI Ventures asked them to remain invested for another three years. Instead these investors have approached the Mauritius legal forum claiming $69 million in damages.-from ET

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RBL Bank-A hidden gem

(Disclosure:I am market making in the shares of RBL Bank)

For most savvy investors, ‘hidden gems’ are companies which fundamentally disrupt markets in ways that the market may not be aware of. This typically gets facilitated through changes in business models and the use of technology. But for the disruption to be effective, the change has to take place in large markets. Think Google, and the way it created AdSense, combining search with advertising and turning the traditional rules of the game on their head.

“The dynamism of the founder, the experience he has and how he has been able to build businesses are often most important,” says Bharat Banka, CEO of Aditya Birla Private Equity, which is an investor in companies ranging from Coffee Day Resorts (which runs the Café Coffee Day chain) to the private sector RBL Bank (formerly Ratnakar Bank).

In a country like India, where capital markets are still not deep enough, investors closely scrutinise companies for governance standards. In many cases, they are ready to make a trade-off in terms of slightly lower returns if the companies are well run and transparent. “Governance is a strong differentiator,” says Banka, citing the case of the recently-listed search services company JustDial, a current market favourite. “There were many marquee investors there already, but with high governance standards, more investors will keep coming in.”

For an ordinary investor it may be inexplicable why someone would pay a hefty multiple for a company which is growing at 25-30 percent, but very often the premium is for transparency and strong governance systems.

This played an important role in tilting the scales in favour of RBL Bank when Banka’s firm was examining investments in the banking, financial services and insurance (BFSI) space.

Though a sleepy community bank till recently, the infusion of fresh energy by way of a spanking new management team, led by former Bank of America India boss Vishwavir Ahuja and former Citi India managing director Rajeev Ahuja, ensured that Aditya Birla PE entered in the second wave of new funding, with a stake of around three percent. What also worked was a professional board and widely distributed shareholding—this ensured no single shareholder or group of shareholders could stall policies.

–from Forbes India