Legendary trend-following trader John Henry has racked up stunning losses
The agitated talk...
In our last issue, NR Desai wrote to us about his 6000 defunct shares of Electrolux lying in IDBI Bank demat account. IDBI charges him Rs100+ per month. The shares cannot be rematerialised. The Bank puts a price of Rs25 per share when the shares are not traded. Desai claims to have paid over Rs3000 to IDBI over the last nearly three years. He wanted to know how to get out of this. In fact, there is a solution as our reader points out. -- Editor
This is with reference to the letter by NR Desai in which he wrote that he is saddled with defunct shares of Electrolux and has to bear the demat charges from IDBI Bank. There is a remedy for this, which is to close the account in a particular fashion. This should be done as per NSDL circular No. NSDL/PI/2005/1692 dated 09 Sept 2005. The procedure is as follows:
- An account closure application to the depository participant (DP).
- The account should have only those ISIN (s), which are in ‘suspended’ status or pending rematerialisation status.
- The client authorises the DP to remove the standing instruction to receive credits in the account.
If such undertaking is given, the DP will suspend all future debits like AMC charges. I think if Mr Desai takes these steps, his problem can be solved, as per the circular issued by NSDL.
Arun Kamat, Kumta, Karnataka, by email
Analyse One stock
I have been a reader of MoneyLIFE for about a year now. I have really liked some of the articles published.
My suggestion is that you should start analysing one stock (could be monthly or in every issue) where you use a method advocated by Benjamin Graham or Philip Fischer or the dividend discount model. This could be an exercise with real data/ balance sheet/financial ratios and not necessarily with buy/sell recommendation. It would be of tremendous use to someone like me who is self-educating myself. Readers could then use the method to analyse their own ideas. The analysis of financial ratios/ market-cap/future business potential/ impact of equity dilution will make readers better armed than decisions based on OPM/sales growth alone.
I am sure your expert staff should not find this difficult.
Could you also do a follow-up on your worst recommended stocks of the past year (rather than just the best performing ones)? I think MoneyLIFE rocks and
I eagerly await my copy.
Hitesh Sharma, by email
MoneyLIFE is the only magazine to have a published a full analysis of all the stocks we have recommended and their returns in the issue dated 10th May ’07. I am sure you have seen it by now. -- Editor
SEBI’s Strange Benevolence
The Securities and Exchange Board of India’s (SEBI) clearance of the DLF Limited’s IPO is surprising. After going through DLF’s draft red herring prospectus (DRHP) filed in January 2007, we find the disclosures inadequate. Some crucial material disclosures have not been made and some statutory requirements have not been complied with.
We sent our views to SEBI on 25th January, to which we received a response on 12th February saying that our letter had been forwarded to DLF’s lead managers and we would receive a response from them, with a copy to SEBI. We did not receive a response from any of the eight lead managers to the DLF issue, although the IPO has been cleared.
The media has reported that SEBI’s scrutiny of offer documents from real estate companies revealed claims of non-existent land banks and exaggerated valuations. In some instances, issuer companies had misled the merchant bankers. When SEBI is in the process of revising disclosure guidelines for realty IPOs, clearing an IPO pending such revision is quite a surprise.
The Indian Express had reported that SEBI specifically made an example of DLF’s disclosures to its Board to consider tighter rules for IPOs by real estate companies and introduction of mandatory IPO grading. A SEBI press release now says that IPO grading will be mandatory only for applications made after 30th April. This means that the DLF IPO will conveniently not be graded.
SEBI’s disclosure guidelines require that “The prospectus shall contain all material information which shall be true and adequate so as to enable the investors to make informed decision….”. DLF does not meet these criteria. For instance:
Profit after tax (PAT) rose from Rs191 crore (in FY05-06) to Rs1,830 crore in the eight-month period ended November 2006. Of this, Rs1,742.4 crore came from sales to a company owned by one of the promoters. The revenue from these transactions was Rs2,159.5 crore of which Rs2,109.5 crore is payable to DLF Limited. Details of these transactions are not provided, raising questions about whether they are mere book entries. Incidentally, the cumulative PAT for the past five years was Rs494.5 crore and net worth as on March 31, 2006 was Rs955.5 crore, which increased to Rs2,925.8 crore on November 30, 2006. Providing details of these transactions in the annual report is mandated by the Companies Act.
The main object of the issue is “acquisition of land and development rights” aggregating Rs6,500 crore. In the DRHP, a land bank of 10,255 acres has been claimed for which partial payments (amount not disclosed) have been made and Rs5,537.5 crore is yet to be paid. No details regarding individual agreements, details of vendors or amount paid as goodwill is provided.
Adjusted EPS for FY05-06 is shown at Rs12.34 (stated to be calculated as per AS-20). By our calculation, it works out to Rs1.31.
These disclosures have an important bearing on determining the final offer price that investors would be willing to pay, especially in view of the poor governance record of the promoters. For instance, in the case of Bhoruka Financial Services, SEBI imposed a penalty of Rs1 crore on DLF; in its December 2005 rights issue, DLF specifically indicated that it did not plan to list its shares in the near future to discourage existing minority shareholders and then sought listing. Some investors did not receive the rights offer at all. Consequently, investors cannot assume continued listing of its shares after the IPO. Any effort by the regulator to protect investors and prevent such occurrences in future, needs to be disclosed.
We hope that SEBI would issue directions for grading of the IPO to ensure true, fair and adequate disclosures.
Virendra Jain, Director, Midas Touch Investors Association, Delhi, by email
I have been your subscriber since the third issue. The analysis and reporting style on various financial products is, indeed, very useful for me. I have three queries:
1. You often use the term market-cap to sales and market-cap to operating profit. My understanding is that if the market-cap to sales is close to 1 and the market-cap to operating profit is also low, then the company is attractively valued. Is there any thumb rule for both these ratios?
2. You rarely take the PE ratio into consideration when you identify a stock. Why is it so? Many research reports suggest that if the P/E ratio is low, then the stock is attractive. MoneyLIFE ignores P/E, does it mean that this ratio is not really reliable?
3. How do I read the following numbers: EV/EBITA? What does a high EV/EBITA mean?
Your reply to these questions will help me make informed decisions.
Ramaswamy, Madurai, by email
1. The thumb rule is that market-cap/sales below 1.5 is cheap for long-term investing, but hardly any stocks meet this criteria. We would like to consider market-cap/operating profit below 5 to be a great long-term bet but again very few stocks qualify. Finally, no financial ratio ever works in isolation.
2. As our analysis in the April 26 issue of MoneyLIFE demonstrated, P/E is not predictive of future price performance. P/E is easy to use and is popular but is of limited use. -- Editor
I had applied for PAN way back in 2000 and was assigned a specific PAN number (PAN-1) through a letter from the Income Tax Department dated 6th December 2000, but no card was sent. On 20th May 2001, I received another letter stating that, due to internal issues, a new number (PAN-2) has been issued to me. This letter had a PAN card attached to it. I have since been using PAN-2 for all my transactions and for filing my IT Returns. Suddenly, last year, my tax consultant told me that the IT Dept had informed her that PAN-2 is incorrect and PAN-1 is correct.
I had tried to surrender PAN-1 on 21st September 2006 through the website
http://220.127.116.11/sparshitax.net/pan/pan.asp and was issued a complaint number. There is no response or status update available on the website. Email reminders to [email protected] on 28th September 2006 and 12th October 2006 have got no response. Recently, my demat and trading account (ICICI Direct) was deactivated because my PAN verification failed. Is there any escalation process for expediting these PAN-related grievances and how do I get PAN-1 cancelled and PAN-2 validated?
Shankar Ganesh Srinivasan, TCS, by email
Apropos your cover story “10 hot stocks to buy now” (MoneyLIFE 24 May 2007), one must realise that the share market is very risky. In business, the more the risk, the higher is the profit or loss. The market is OK for those willing to invest on this basis, but it is a distant dream for investors who want to play safe. However, a few select shares of reputed companies or blue chips can be bought for long-term investment when their market price is lowest. Keep them in the locker and sell them only when you need funds on a rainy day. Until then, enjoy the dividend very year.
Mahesh Kapasi, New Delhi, by email
The UIDAI has rolled out its ambitious UID or Aadhaar project. However, there is no information or update about the progress of Aadhaar, except from Mr Nilekani who said the same would be made available in two weeks.
Nandan Nilekani-led Unique Identification Authority of India (UIDAI), which started collecting data, including biometrics and issuing unique identification (UID) numbers to people does not have any update on the progress.
Moneylife sent a mail to Mr Nilekani asking about the progress of its ambitious UID project, Aadhaar. We asked him about the total number of people enrolled for Aadhaar, the number of de-duplications required for fingerprints, iris scan and face pictures (all forms part of biometrics) and the number of cases where de-duplication was not possible. (De-duplication means to eliminate duplicate or redundant information).
We asked the UIDAI chairman if its database is ready for authentication process and number of people who have successfully authenticated their UIDs at least once as well as percentage of false positives and negatives during the authentication. Moneylife also asked if the authority can share the statistics and update it on a regular basis.
We received just one line mail from Mr Nilekani, in which he says, "We will be shortly be having a Public Data Portal on our website www.uidai.gov.in within two weeks which will answer all the relevant questions in your email."
Separately, according to a report from the Hindu, the government of Kerala, the only State that mandates the use of Free and Open Source Software (FOSS) in governance recently found that the client enrolment software used is only compatible with Windows.
The UIDAI is using a software that is compatible only with Microsoft's Windows operating system (OS), for its ambitious UID or Aadhaar project. However, this has irked many activists as well as advocates of open source software since UIDAI itself has mandated that all the middleware used in Aadhaar must be vendor neutral. This means it should not be dependent on any particular software and must work across the OS or platforms.
In Kerala, which has embraced open platforms, this is a vexatious issue because virtual device managers, which provide an interface for applications to devices such as biometric devices - are not Linux-compatible, the newspaper report said.
Kerala has declared that it will provide the UID number to over 60 lakh schoolchildren in the state under the UIDAI initiative and has selected Akshaya, [email protected] and Keltron as enrolment agencies for the work. However, in countries around the world where a national ID card system is being used, these IDs are given only to those above the age of 14 years and not to school-going children between five years and 14 years of age. (Read Is the UIDAI database vulnerable? http://www.moneylife.in/article/78/9594.html )
What is interesting in the case of Kerala is all three agencies appointed to do the enrolment of students use only Linux OS, which is completely different from Windows OS. Speaking with the Hindu, Ashok Dalwai, deputy director-general, UIDAI, said this is a "Kerala-specific issue." He confirmed that all enrolment software is 'purely for the Windows platform.' "For now, we have asked Kerala to go ahead with laptops with Windows. Our developers will work towards Linux compliance later," he told the newspaper.
This has left many activists and advocates of open source software furious as they feel depending on a particular vendor, especially Microsoft, which is known for its Windows and the unending security issues associated with the OS, to speed up the UID process.
Just last month, VK Saraswat, scientific advisor to the defence minister said that the Defence Research and Development Organisation (DRDO) would spearhead an effort to develop India's own futuristic computer OS to thwart cyber crimes like data theft.
Mr Saraswat, who is also director general of DRDO, said, "In today's world, where you have tremendous requirements of security on whatever you do... economy, banking and defence... it's essential that you need to have an operating system."
UIDAI has been facing criticism for rolling out UID numbers to 'residents' and not to 'citizens' of India in addition to privacy and security issues related with its database. Many activists and analysts are now questioning the motive behind the authority's approach to align with one particular vendor and diluting its vendor neutral mandate.