Media Manipulation
The “True Lies” section on the media pretending to be helpless pawns and giving the impression as though promoters and directors work the rumour-mill and issue denials at their cost, points to a dangerous situation, especially when one recalls the earlier analysis of media companies including NDTV and CNBC helping themselves to large ESOPs obviously puncturing profitability and dividend prospects. Are these new barons the new Goebbels? One wonders if this new-found power to ‘live the bigger lie’ is part of an overall liberalisation of media and business, or it is just exploiting fragile governments; and the FII-style of fund managers placing reliance on dedicated media reports as a reflection of market sentiment. The trend of advertorials and blatantly sponsored editorial content misinforms people and only suggests ulterior motives. Either way, our new media barons need to think of using their freedom to work out a self discipline, unless their motive is something else. What is the difference between these noble souls and roadside extortionists? It was also disturbing that no other media has covered the blatant scam at SHCIL, while MoneyLIFE pursued this vigorously. It is heartening to see the few in this field who value something called integrity - or is this an anachronism?
Udit Chaudhuri, Mumbai, by email

IS THE SENSEX A BAROMETER?
Please refer to “A new bull market” (MoneyLIFE, 11 October 2007). It is human greed to make easy money that is resulting in a soaring Sensex, and it will continue this way for ever! The real worth of a company, in most cases, is much below its share price at the stock exchange. The stock market is, in fact, being manipulated by stock brokers and those who play satta in shares. The Sensex is not a barometer of economic development and prosperity. Moreover, the accumulation of wealth from shares is unproductive activity, because it does not contribute to the nation’s wealth. Generally, share prices of only a few select companies determine the overall Sensex. How then can it be called a true index of the progress of the country or the barometer of our economic health? Apropos of “Benefits of Tea” (MoneyLIFE, 25 October 2007), I’d like to state that tea reduces fatigue and refreshes a person. While travelling, it is the most important drink to make one fresh! It is a fact that “61% of women drink tea as opposed to 51% of men in US”. Drinking tea is a good pastime. It is customary to offer tea to guests. Also, it lowers the chances of heart problems! Last tip: in scorching heat, if you are tired, drink a cup of hot tea to reduce fatigue and be fresh!
Mahesh Kapasi, B-49, Gulmohar Park, New Delhi-110 049

GREAT SERVICE FOR RETAIL INVESTORS
MoneyLIFE is doing a great service in advising retail investors and also helping solve their problems. Otherwise, nobody is bothered about retail investors. I am glad I subscribed to your magazine. I purchased 200 shares of Subhash Projects and Marketing in 1995. I do not get annual reports and dividends, though my address has not changed. I sent them a photocopy of my holdings and complained about non-receipt of annual reports and dividends. I got a telephone call from the company telling me that dividends and annual reports are sent to me regularly, but they are not giving it in writing. I have written to SEBI and also to Investor helpline and, as a last resort, I am writing to you to advise me and to let me know how to approach MoneyLIFE Foundation. I heartily congratulate you and appreciate your efforts to help investors to the best of your ability in such circumstances. Please continue the efforts for which investors will bless you.
Mrs Sarojini Ugale, Kirloskar Hospital, Bashir Bagh, Hyderabad, 500063

Ms.Ugale wrote to us on 6th October, 2007 and we advised her on what she could do in this situation. We also wrote to Subhash Projects on her behalf. We received a second letter from her on 16th October. Here is what she says -- Editor

I have no words to thank you for your advice and active action in resolving my problem for now at least. I have received the dividend declared in Sept 2007; and hope to get the dividends declared in earlier years and also start getting the Annual reports and dividends declared in future. The company is performing well and after they have entered the Infrastructure segment, the stock price has gone up a lot. Thanking you once again, with best regards,
Mrs Sarojini Ugale

RUNNING WITH THE BULLS
Thank you for your analysis of Godawari Power and Noida Toll Bridge. Your recent review of Malar Hospitals and Ramakrishna Forgings also looks interesting. I recently came across Jamna Auto, which I think can be your cover story. Clearwater Capital Partners are turnaround experts. They were responsible for the turnaround of Diamond Cable. The stock of Diamond Cable was Rs55 when they got involved, today it is trading at Rs360. Jamna Auto is at Rs40-42 level and according to my analysis, assuming there is no dilution of equity in the next few years, the stock may quote at Rs350-400. Are there other companies in which Clearwater is active? Many brokerage firms came out with a ‘Buy’ recommendation on Bartronics. I have personally held the stock for a very long time since I did not receive the annual report. R Balakrishnan’s analysis was an eye opener for all of us. But, in a bull market, everybody wants to run with the bulls. I remember the past when Vikas WSP, HFCL, Pentamedia and DSQ Software were projected as multi-baggers. Vikas WSP has a world record of declaring results on the first day after every quarter. But the retail investors lost money in that stock, not the brokers who recommended it. You should come out with more of such analyses which will alert small retail players. I am an active reader of MoneyLIFE and proud of our team.
Santosh Mhamunkar by email

A SUGGESTION
Please recommend a few scrips based purely on contra theory. These prove to be multi-baggers and very long-term investors are interested in such scrips.
Irshad A Khan, NAGPUR,by email

Our stock picks are based on a model and from time to time this has thrown up unusual stocks, which have previously been featured even as cover stories. In fact, the Street Beat section of this issue also has four stocks that have not been part of the bull run, but have interesting fundamentals and could be considered contrarian calls.- Editor

ELPRO INTERNATIONAL: CHEATING THE MINORITY
We are a stock broking firm catering to retail, HNI, corporate and institutional clients. A few of our clients are aggrieved over a decision of Elpro International, which is going for a capital reduction programme only for minority shareholders. The scheme will immensely benefit the promoters, although indirectly. We want to take this issue up with various authorities and would also like to seek your assistance in drawing attention to the case and the postal ballot notice. Elpro International passed a Special Resolution in January 2006 (through postal ballot) to reduce its capital by 25% at a price of Rs183 per share. However, this does not reduce capital across categories, but is actually a way of giving an exit to minority shareholders with small shareholdings.
The company cites mismatch in its assets and liabilities as the reason for the capital reduction. It also mentions that surplus cash generated through the sale of one of its isolators division to Siemens at Rs25 crore would be utilised for capital reduction. The decision has apparently been arrived at after exploring various options and a 10% premium to the ruling market price of Rs166.5 (as on 25 January 2006) was offered to investors. However, detailed analysis shows a different picture of what otherwise looked like a decent decision.

  • Firstly, it is unfair that the capital reduction is only to eliminate minority shareholders, otherwise it should have enhanced shareholder value by doing it across the board.

  • The company claimed lack of opportunities in the existing business line as the reason for the capital reduction; however, it recently sought shareholders’ nod for increasing its borrowing limit from Rs100 crore to Rs500 crore. Isn’t this curious?

  • We also have doubts about the valuation for arriving at the exit price. Elpro has an investment of approximately Rs70 crore in MetLife Insurance Company, which translates to a 10% stake in the company. In the past two years, private insurers have been re-rated in the light of the growth potential within the sector. Yet, Elpro has opted to reduce the value of its investments in MetLife Insurance and renounced the rights offered at par in favour of a promoter group company called Faridabad Investments. Elpro’s stake in MetLife can be valued at anywhere between Rs96.7 crore-Rs129 crore (assigning a Net Business Achieved Profit multiple of 15x-20x on FY09E premium). This translates into per share value of Rs273-Rs363 on the current equity capital of 35.6 lakh (3.56 million) shares. On the reduced capital, the valuation will shore up further by 25%.
    In addition, Elpro intends to develop surplus lands where it has no operations - for instance, Chinchwad, Pune by utilising around 20 lakh Sq ft of property. The revenues from the project are estimated at as much as Rs300 crore.
    Taking all these factors into account, the value of Elpro shares should be over Rs650-700 per share. The current market price of the stock is around Rs350-Rs375. The exit price of Rs183 per share offered to minority shareholders is far too little and the company must be asked to go for a reverse delisting which will allow minority shareholders a say in determining a fair exit price.
    Sejal Doshi, FinQuest Securities (P), Mumbai by email

    TRADING PLACES
    Every newspaper and magazine provides a plethora of information about stocks and mutual funds. However, we hardly come across any information on the stock exchanges themselves, where all the action happens. Can we have an article on the advantage and disadvantage of trading on the National Stock Exchange or the Bombay Stock Exchange in a comparative sense? by email

    HOW TO REACH US
    Letters to the Editor can be emailed to [email protected] or
    can be posted to:
    The Editor, MoneyLIFE Magazine, 7 Nagree Terraces, Soonawala
    Agiary Lane, Mahim (W), 400 016 or faxed to 022-24442771.
    Letters must include the writer’s full name, address and telephone no.
    and may be edited for clarity or space.
    New Subscription & Customer Service
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