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- Linkfest on Greece
- Jubilant Foodworks’ Listing Gains at 58%
- Network18 lays off 350 more
- Railway Bonds at 7.25% Tax Free!
- Dividend in ELSS Funds Have An Advantage
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Greece is on the verge of default or a bailout or a bit of both, it seems. The idea of any of these events happening has spooked world markets; now any rumour seems to come with big market moves – an indicator of a panic move in the offing. Who knows, maybe we’re in the middle of the panic move – remember, markets the world over have corrected 10% – and the next round is near.
- At Naked Capitalism: A description of the rumour that started markets rolling upwards, that Germany would back a Greek Rescue. First, the telegraph kicked in an article saying the German Finance Minister was going to rescue them, and German banks have exposures of €43bn in Greece.
Wolfgang Schäuble, Germany’s finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response.
…
Germany’s apparent backing for a bail-out comes despite worries that it will lead to the breakdown of fiscal discipline across the Club Med region. It also raises troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help.
Germany’s dramatic shift in policy changes the character of the euro project. It follows weeks of soul-searching in Berlin, and after increasingly loud pleas from Brussels, Paris and southern capitals. The deciding factor was concern that letting Greece fail risked a “Lehman-style” run on Club Med debt, with systemic spill-over across Europe.
German exposure to the region amounts to €43bn in Greece, €47bn in Portugal, €193bn in Ireland, and €240bn in Spain, according to the Bank for International Settlements. German lenders are already vulnerable, with the world’s lowest risk-adjusted capital ratios bar Japan…
“Government spokesman Ulrich Wilhelm rejects as unfounded reports citing coalition sources saying a decision for aid for Greece has in effect been made,” a government official quoted him as saying. Reuters had earlier reported a senior German ruling coalition source as saying euro zone countries had decided in principle to help Greece.
- Reader MK shouts out a link that Goldman Sachs helped Greece mask it’s true debt. With Euro treaties limiting deficits to 3% and debt to 60% of GDP, Greece used complex swaps with “fictional exchange rates” to get some creating financing, thus moving out some debt to 10-15 years later. The treaties don’t treat such swap liabilities (“derivatives”) as real debt, so it doesn’t get counted – but hey, it’s debt because the structure makes it repayable. The problem with derivatives is in their abuse to do regulatory arbitrage – if they now change the rules, everyone else who’s made these kind of trades gets smashed. And heck, that’s the ONLY reason they won’t change the rules. This is just sick.
- Roubini on Greece: Greece has 13% fiscal deficits coming up. There’s political problems in actually cutting it (Strikes, unrest and all that – that’s potential alternate venue for the Shiv Sena/MNS). Three coinciding events – ECB’s stimulus exit, Dubai’s default and Greek deficit revisions from 3.7% to 12.7% (Gee, you think that last one might be a little important?) did the damage. Roubini thinks they’ll have to cut spending, no matter what; default is not an option.
A stock out of nowhere propelled to new highs today (ok, technically anything is a new high for a freshly listed stock). A 58% listing gain saw Jubilant Foodworks close at 229 today: (HT: @prashantsolanki)
ET Story:
A spectacular debut by Jubilant FoodWorks, which runs the Domino’s Pizza chain in India, on the bourses on Monday has come as a welcome break for a market spooked by a string of subdued first-day performances by companies newly listing their scrips. At the end of the day Jubilant Food-Works was valued at Rs 1,456 crore which compares favourably with the $622 million (around Rs 3,000 crore) market cap of the New York Stock Exchange-listed Dominos Pizzas Inc on Monday evening. The Rs 330-crore IPO proved to be an exception to most recent issues, as it offered hefty returns to investors on the first day of listing.
You would think this was a little shady, because Jubilant has 286 stores in India and, er, the US company is 8,000 stores. Jubilant is only a franchisee and can’t do a thing other than what it’s got agreed with Dominos. They’ve made about 12 cr. in the first 6 months of this financial year, on a turnover of about 182 cr. – a margin of 5 to 6%. With the 6cr. shares outstanding the Earnings per Share was about Rs. 4 (annualized) and at the current price, the P/E ratio is 55.
With 6 crore shares outstanding, and most of the IPO proceeds (nearly 80%) going to existing shareholders, the company wouldn’t have benefited much. Only 40 lakh shares would be a fresh issue (of an issue size of 2.2 cr. shares) – which at a price of Rs. 145 would have raised only 58 crores.
It’s a low margin business; Even with the fresh cash they are unlikely to earn a lot more. As Deven Choksey says, this is a stretched valuation by most means. The stock should go down, though I don’t know when. Classic Pump-and-dump, don’t get caught.
From Suchetadalal.com:
Media and entertainment company Network18 Media and Investments Ltd, which has been pumping money into its cash-strapped, loss-making businesses to keep them alive, is finally taking a call on the situation. According to sources, the media company has laid off about 350 employees, mostly technical and production employees from its Web operations. It (the layoff) also includes some journalists, the majority of whom have now joined Zee Business.
According to a source, who wishes to remain anonymous, the company has not offered any increment this year. Even its Web-based commodities operations employees have not received any increment since the last one-and-a-half years, the source added. Network18 has also reportedly closed its technical analysis beat from the Web operations of moneycontrol.com and wants to outsource the same to cut costs.
In November too, Network18 laid off around 200 permanent employees as part of a restructuring exercise aimed at merging broadcast operations of its Hindi and English business news channels. According to a filing by the company to the Bombay Stock Exchange, the 'one time' restructuring cost it Rs4.50 crore on account of rationalising the workforce.
Hat tip: Kaushik Gala.
Web 18 Financials have been pretty bad:
Medianama has some gory internal details of the firings: Severance of two months, immediate fires, layoffs in all verticals of Web18.
This was to be expected. The financials show continuous bleeding and while at Moneyoga I would wonder constantly how anyone could ever hope to compete in the space, when the leader was continuously making losses. The bubble in the media and internet space is still strong, so the Network18 group has been able to continously raise money to fund such losses, and still stay strong. The network 18 financials (across all sub-companies) have also been difficult:
- Although losses are still high, the revenue increase is a good sign.
- EPS is shows very strange growth, and the income streams are very strangely intertwined. A good portion of revenue is internal – i.e. between companies it owns; for example, 10% of its last quarter revenues was inter-company revenue.
- The holding patterns are strange – Web18 is held as majority owned by TV18 (another public co) and 13% by ibn18(yet another public company), both of which are owned partly by Network18. This is a maze of companies that can only confuse investors. I am VERY wary of companies that choose confusing investment structures.
- The company is very aggressive on media channels and is the giant of the financial media space. It deserves some premium for its size, the brand and the first mover advantage.
- At Rs. 100, the market cap of Network18 is 1100 crores. That’s about 1x annual sales, and might be a good place to buy if the company does turn around. But it looks like investors might not be patient enough; the stock meanwhile hasn’t done too much in the last few months.
Disclosure: No positions
From the Times:
The finance ministry on Monday approved issue of bonds by railways worth Rs 5,000 crore for the financial year ending March 31, 2010.
The bonds will be issued by Indian Railway Finance Corporation (IRFC), which will be tax-free, secured, redeemable and non-convertible, carrying an interest rate in the range of 6.5% to 7.25% per annum. The bonds will be available in the form of public issue.
Hat Tip: @b50
I couldn’t find any information on the IRFC site though their earlier bond issues are listed, at 4 to 8.5%.
Risk: IRFC is not explicitly guaranteed, though a risk transfer agreement shifts capital raising requirements to the Ministry of Railways. Technically that could still mean a risk (unless you hear “explicit guarantee”, there isn’t one). But it is less risky than bank deposits, for sure.
A tax-free rate of 7.25% is greater than 10% pre-tax; this is the equivalent of a 10% fixed deposit, but your money is locked for 10 years or so.
Is it worth putting money into ELSS funds as they announce a dividend?
HDFC Long Term Advantage Fund just announced a “37.5% dividend”.
The real yield is about 10%. (Rs. 3.75 on something that currently costs Rs. 36.545). Ignore the “37.5%” figure – it’s a remnant of an archaic system that has little or no value for anyone investing today.
We all know that dividends are your own money coming back to you. Technically you shouldn’t be bothered, whether you pay in and take it out as a dividend, or leave it in, it’s of no difference.
But with ELSS funds, there is a difference. The invested money is locked for 3 years, and you get a tax advantage on it. If you were offered a dividend, you could get a tax advantage on the entire amount, while still getting a part of it back as dividend! [The money would otherwise be locked for three years]
Example: You have Rs. 50,000 and you buy the above HDFC fund before Jan 11. You get a tax break on the entire 50,000 – worth Rs. 15,000 to you if you’re in the 30% bracket. And in a few days you’ll get back 10% of your money – or Rs. 5,000, as dividend. Effectively, you’ve saved yourself Rs. 15,000 in tax by investing only Rs. 45,000.
(A few years back, Birla Sun Life did a one-time stunt with it’s tax plan, giving back HALF your money. But they did it in a shady way – pre-announcing the dividend months earlier, which is not allowed by SEBI. Read this article for more details.)
Yields of 10% are not uncommon – and 10% is probably the lower end of the spectrum. Last year, HDFC’s other tax saving fund, HDFC Taxsaver, announced Rs. 5 dividend on an NAV of Rs. 34 – a 15% yield. If you’re looking to save tax but would like to not have to invest ALL the money, buy a tax saving fund that gives you a high yield, just after the dividend is announced.
Also read: Should you invest in tax saving mutual funds? and Mutual Fund Commissions on Tax Saving Schemes.
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