Weekly Market View: On the edge

The market is supported at 16,800, 16,300 and finally at 16,000. Below the last support, it would be mayhem

The domestic market ended higher by 2% on a weekly basis. However, concerns remain over the long-term rally. The benchmarks started the week with a gain on solid growth numbers announced by the government.

However, it was down by 372 points on Tuesday as freak trading on the counter of Reliance Industries (RIL) dragged down the indices. The market witnessed positive close for the rest of the week to end the week on a higher note.

The top five gainers for the week on the Sensex were Reliance Communications (up 14%), Maruti Suzuki (up 9%), Mahindra & Mahindra and Hindustan Unilever up 7% each and Bharti Airtel (up 6%). The top five losers were Sterlite Industries (down 5%), Jindal Steel & Power (down 4%), Jaiprakash Associates and Tata Power (down 3% each) and Tata Steel (down 2%).

In the sectoral space on the BSE, the auto and FMCG indices surged 4% each while the metal index was down 2% and the realty index declined 1%.

India's economy grew at 8.6% in the March quarter driven by the robust manufacturing sector as government and consumer spending increased. The growth was higher than the revised 6.5% expansion in Q3 December 2009 and 5.8% growth in Q4 March 2009. The manufacturing sector grew 16.3%, farm output grew 0.7%, the mining sector grew 14% while services increased by 8.4% in January-March 2010 from a year earlier. The economy grew at 7.4% for the year ended 31 March 2010. The government expects that growth will be on track and the economy will grow more than 8.5% in fiscal 2010-11.

The monsoon stared in Kerala, in line with the weather office's forecast that it would hit the mainland on 30th May.

On the global front, manufacturing in the eurozone grew at a slower rate in May.

The Markit Eurozone Manufacturing Purchasing Managers' Index (PMI) for May sank to 55.8 from 57.6 in April, nudged down from an earlier flash estimate of 55.9. Manufacturers are being hit by increasing costs as the input price index reached its highest level since July 2008 at 73.7 last month, compared to 73.4 in April. Chinese manufacturing grew at a slower pace in May, indicating that the Chinese government's steps to control the economy could be having an effect.

The official China Federation of Logistics and Purchasing's (CFLP) Purchasing Managers' Index was down to 53.9 in May 2010 from 55.70 in April 2010, while HSBC Holdings PLC's PMI was down to 52.7 in May from a revised 55.2 in April. 

Back home, India's exports rose an annual 36% in April to $16.9 billion, the sixth consecutive rise after 13 straight months of decline. Imports rose 43% from a year earlier to $27.3 billion. Exports dropped 4.7% in the fiscal year 2009-10 as the global slowdown dampened demand. The HSBC Markit Purchasing Managers' Index (PMI), based on a survey of 500 Indian firms, surged to a 27-month high of 59 in May 2010 from 57.2 in April 2010, on steady growth in output, new orders and employment. The rate of growth had slowed in March and April 2010.  

In the US, the headline number showed a slight slowdown but new orders and exports were stable. The index of national factory activity was at 59.7 in May from 60.4 in April. The index's employment component rose to a six-year high, while new orders were unchanged at 65.7 and exports increased to 62 in May from 61 the previous month.

Closer home, the auto sector posted firm growth in May. Maruti Suzuki India sold 102,175 vehicles in May, the most for any month and up 28% from a year earlier.
Hyundai Motor Co's Indian unit sold 46,808 units in May including exports, an annual increase of 7%. Two-wheeler manufacturers also posted positive growth in May. Hero Honda Motors posted 14% growth in sales to more than 435,900 units.

The Reserve Bank of India (RBI) said that inflation remained higher than its comfort level, signalling that the bank could raise interest rates further.

The Bank of Japan has asked the government to fix the fiscal deficit as public debt has been twice the size of Japan's gross domestic product (GDP).

Although the Japanese economy grew 1.2% in the first quarter of this year, the bank expressed its concern over the long-term economic growth of the nation after the slowdown in the eurozone.

India's food price index rose to 16.55% in the year to 22nd May, higher than the previous week's annual reading of 16.23%, following a rise in vegetable prices.

The fuel price index climbed 14.14%, compared with an annual rise of 12.08% in the previous week due to higher prices of electricity. The wholesale price index stood at 9.59% in April after hitting 10.6% in February.

The government said that it is was not yet time for RBI to intervene in the currency market after the rupee was down 4.3% against the dollar in May.


Fortis' Parkway battle: The Khazanah story

The Malaysian government’s fund Khazanah has become more aggressive since last year and is ready to go miles to protect ‘national interests’ from falling in the hands of foreigners—in this case Parkway ending up as unit of Indian-owned Fortis

The control battle for Singapore-listed hospital chain Parkway Holdings Ltd has brought Khazanah Nasional Berhad (Khazanah) to the forefront as an aggressive sovereign fund of the Malaysian government, which so far has remained somewhat under the radar.

Khazanah Nasional, literally translated, means National Treasury. Khazanah is the investment-holding arm of the Malaysian government and is empowered as the government's strategic investor in new industries and markets.

Khazanah is in the news due to its possible control war with India's largest healthcare chain Fortis Healthcare Ltd. Last week, Khazanah, which holds 23.8% stake in Parkway, made an open offer to increase its stake to 51.5% at 3.78 Singapore dollar (S$) per share. Fortis, on the other hand, holds 25.37% stake in Parkway, making it the largest stakeholder in the company.

The journey of Parkway and Khazanah and their relations over the years is quite fascinating and may hold a potential for a Bollywood film.

Fortis, led by the Singh brothers, Malvinder and Shivinder, had bought stake in Parkway from US-based TPG Capital by paying S$959 million. Earlier, in 2005, Newbridge Capital, which later morphed into TPG Capital, emerged as the largest shareholder in Parkway. Newbridge top brass was handling Parkway management.

Soon, Parkway decided to bid for Pantai Holdings Bhd, the other healthcare services provider from Malaysia. In 2005, Parkway bought Pantai shares from the latter's chief executive Datuk Lim Tong Yong. Next year, Parkway emerged as the highest bidder for Pantai, which led to a political storm in Malaysia. Political parties alleged that since Pantai's units held key concessions from the Malaysian government, its control should not fall into the hands of foreigners (in this case Newbridge). Politicians from the ruling political party had said they were unhappy that the concessions-one for health screening of foreign workers and another for the provision of state hospital services-had fallen into foreign hands.

Enter Khazanah to save the day. Khazanah for a start bought 6.6% stake in Pantai through its unit Pantai Irama Ventures Sdn Bhd for an undisclosed amount. At that time, it said that it believes the strategic interests of the nation (Malaysia) will be protected in this manner the commercial interest of Pantai and its investors will also be served with this partnership.

What Khazanah meant by partnership was nothing but its arrangement with Newbridge to run Pantai operations. Under the partnership, both Khazanah and Newbridge formed a special purpose vehicle (SPV), which would hold Pantai stake. However, due to the political heat, Khazanah was made to hold a majority stake in the SPV and it was decided that Parkway management (led by Newbridge) would continue to run Pantai hospitals.

This arrangement started a new relationship between both the fund and the hospital chain in such a way that later Khazanah ended up with a significant (23.2%) stake in Parkway. Using Khazanah's shareholding, Parkway also formed fruitful relations with India's Apollo Hospital Enterprises Ltd. Both Apollo and Parkway together run a hospital in Kolkata. In 2002, Apollo Hospitals bought 50.26% stake in Duncan Gleneagles Hospital for Rs3 crore, which was struggling to get off the ground. It was a joint venture with GP Goenka group.

While the relations between Khazanah, Parkway and Newbridge (TPG) were sailing smoothly, in March 2010, TPG decided to exit Parkway. It sold its 23.9% stake to Fortis, owned by the Singh brothers. Two years ago, the Singh brothers sold their entire stake 34.8% stake in Ranbaxy Laboratories Ltd, India's largest pharmaceutical company, to Japanese Daiichi Sankyo at Rs737 per share. So, money may not be a problem for the Singh brothers if they decided to counter-bid Khazanah's offer to Parkway. (read more http://www.moneylife.in/article/8/5766.html )

The real question is whether they would be allowed to do so by the Malaysian government, given that TPG or Newbridge had to broker a mid-way to control Pantai?

Although Khazanah is a national fund owned by the Malaysian government, till last year it was looked as more sober or less aggressive compared with Singapore's state-run funds, Government of Singapore Investment Corp (GSIC) and Temasek. According to media reports, Khazanah was told to progressively divest its non-core assets in order to lure foreign portfolio funds back. Last year Khazanah made a total of eight divestments worth over 3.1 Malaysian ringgit (MR).

However, the fund still lacks real cash power compared to GSIC. Further, Khazanah does not receive a constant cash supply from the Malaysian government, which itself is struggling to cope with a persistent fiscal deficit and has to mainly be dependent on dividend income and gains from stake sales. Following its divestments, Khazanah may have some war chest to do more deals.

At the same time the fund has announced selling of Islamic bonds worth S$500 million to fund its Parkway purchase.

So, the first round of the Parkway battle appears to be won by the Singh brothers with the availability of huge cash and resources to manage more. But the second round may not be that easy for them. They need to keep in mind the Pantai deal and pave a way. There are three options left for the Singh brothers.

Fortis can either spend more and retain control of Parkway or end up as a minority shareholder or can sell its stake to Khazanah and walk away with some more money. 



Fatpipe’s IPO appears pricey

Although there are no strict comparables to Fatpipe, companies like Vakrangee Softwares, Tanla Solutions and Cyberteck System have lower PEs

Chennai-based IT firm Fatpipe Networks India Ltd's (FNIL) initial public offer (IPO) hits the market on 7 June 2010. The company plans to raise Rs49 crore from the issue. FNIL has fixed the price band at Rs82-Rs85 per share. The issue closes on 9 June 2010.

As on 31 March 2009, the company's earnings per share (EPS) stand at Rs6.46. Its price to earnings (P/E) is at 16.11 at the lower end of the price band. Although there are no strict comparables to FNIL, companies like Vakrangee Softwares Ltd (6.86), Tanla Solutions Ltd (6.30), Subex Ltd (15.11) and Cyberteck System and Software Ltd (7.28) are available at a cheaper price.

"The company is bringing the issue at a price band of Rs82-Rs85 per share which will have the P/E multiple of 22-23 on post-issue annualised EPS of Rs3.69 (On the higher band of Rs 85/share). During the 9MFY10 the intangible assets contribute major part of gross block of company which is a cause of concern," stated a research report of Hem Securities.

FNIL reported a total income of Rs45 crore with a net profit of Rs5.20 crore for the nine months ended December 2009. It registered a cash flow of Rs1.21 crore for the same period.

Brickwork Ratings has assigned an 'IPO Grade 2' to FNIL which indicates 'below average fundamentals'.

A majority of FNIL's revenue comes from the US and may face risks of foreign exchange fluctuations. The company is planning to utilise the proceeds to expand the product line, to establish 16 new marketing offices across the globe including additional offices in the USA, for acquisitions and to meet its working capital requirement. Fatpipe is eyeing to expand its operations to China, Singapore, South Africa, Kenya, Nigeria, Argentina, Belgium, Germany, France, Eastern Europe and Australia.

The company provides global corporations and government offices with technology that increases the security and reliability of wide area networks (WANs), corporate extranets, virtual private networks and all last-mile Internet connections, including wireless connectivity. The company holds patents on a technology called "Router-Clustering", which enables customers to obtain highly redundant and fast Internet/WAN access.






Bob Smith

7 years ago

The company earned a net profit after tax of Rs 399.37 lacs for the year 08-09, which was transferred to General Reserve. The balance at the end of the previous year in General Reserve was Rs 49.97 lacs. If you add, the profit transferred this year, to this figure, it should be Rs 449.34 lacs. Simple arithmetic. However, as per the statement of accounts as furnished in the DRHP, filed with SEBI, the figure is Rs 2103.04 lacs. For the difference, the corresponding entry shown in the balance sheet is Intangible assets.

DO NOT BUY!! Failure to report multiple litigation as well as challenges to its patents. Currently under federal investigation of its labor practices. Financials would not likely stand up to a US SEC audit, hence the reason to change from a U.S. company to an India company and run the IPO there. Numbers are perceived to be misleading and inaccurate.
Dr.Raghula Bhaskar and Ms Sanchaita Datta are the promoters of the company. They take in excess of $400,000USD of income on a VC supported venture. They claim profit, but no listing of dividends to its investors. Interesting to note that they are husband and wife with a combined control in excess off 33% If you scrutinize some of the other ventures such as their India based programmers company BOX, you will find the company is listed as being based out of their home. Makes one wonder whether the VC's are even aware they may have financed these other entities. This begs to question: Is this IPO merely a sham to pay back the VC who by now must be asking...where did the money go?

Bottom Line: Fat Pipe years ago was at the right place at the right time. However, it has failed miserably to stay up with the ever-changing technology and marketplace. Other companies, new technologies, have sprung up bringing with them new technologies and innovation. Sorry Fat Pipe, you are OBSOLETE!!! Do you remember Iomega with the zip drive...? IOmmm who? A bet in Las Vegas would be a better risk

James Smith

7 years ago

Bad Buy !! Too High, None disclosed litigation, Patent Challenge, Principals are Husband and wife and they seem to want to conceal that fact. wonder why, maybe because they have 33.5% Don't believe numbers would hold up under scrutiny
Hear what others have to say:


•The Company operates in a highly competitive environment.
•The majority of the operations of the Company are carried out from its branch offices in the USA. Risks related to FEMA.
•The funds requirements are not appraised by any Bank or Financial Institution.
•The Company proposes to acquire businesses/companies located outside India, the company is yet to identify companies/ businesses to be taken over.
•The Company has not yet tied-up for debt component for enhanced working capital needs.
•The Company has not paid dividend in the past.
•The global operations expose the Company to complex management.
•The combined employee strength is 120 and 50% are in sales and marketing.
•The average cost of acquisition of Equity Shares by the Promoters is at Rs 10/-
• Receivables out standing as on 30-09-09 are at Rs1269.69 lacs, against a turnover of Rs 2958.68 for the same period.


EPS for the year FY 10-11 is expected to be Rs. 5.50 per share. At the lower end of the price band of 82, PE multiple works out to 15 times. Similar companies in IT networking equipments / manufacturing are presently ruling at PE of around 8 times. Valuation is very much stressed . There are no project to be implemented. Structured IPO. The company has no dividend payment history. Keep 1000 km distance from the issue.

Another Emmbi in the making. Investors are advised to stay away from the issue.

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