Tuesday, August 30, 2011

Everonn MD arrested by CBI on graft charges?

NDTV and WSJ reported that MD of Everonn, P Kishore has been arrested by CBI in an alleged case of bribery and tax evasion. This brings into sharp focus the corporate governance practices(or lack of it) at Indian companies at a time when corruption is a hot topic around the country and Investors are likely to jump ship at slightest hint of any malpractice. 

Everonn has been consistently performing well in the recent past in terms of its financial performance and had improved its image with induction of J J Irani as non-executive chairman of the Board. If true, these reports are a huge blow to that effort by the company. 

Wednesday, August 17, 2011

Google Motorola Deal

Google has agreed to acquire Motorola Mobility Holdings Inc (MMI) for over 12 billion dollars. This comes on the heels of Google losing its bid to acquire Nortel's 6000 patents which were sold to a consortium of its competitors for $4.5 billion.  Deal amount of 12 billion for Motorola's potentially 25,000 patents seems to be a great deal for Google. The operating company, with close to run rate of over 12 billion (with consensus 13.5 at billion dollars for the year 2011) in annual revenues, is virtually free.

This is a great deal for MMI's share holders as they got more than 60% premium to the the closing price prior to deal announcement.

What I suspect however, is that Google will spin this out in a couple of years, post it has had a chance to seal rights to these patents and bought these off MMI. Google is not a hardware company and should remain that.  

Wednesday, August 10, 2011

So why did US Treasury yields drop post the ratings downgrade?

So if US treasuries are not risk free, then why are the yields falling and there continues to be a huge demand for US government debt?

The answer is that it is not about absolute but about relative levels of risk. The perception (or reality) is that if the US government is risky, then lending to any other government is perhaps riskier. And the difference (in perceived risk) just became even more pronounced.

What is probably going to happen is that US domestic funds would continue to buy treasuries (as they would have a tough time trusting any other country) even though investors from outside of US (and their respective central banks) would start to pull out of reduce incremental exposure to US debt.

Sunday, August 07, 2011

US Downgrade and its Implications?

S&P downgraded United States this week confirming what the world already knew that lending to the United States is not entirely risk free. One does not need to be an economics PHD from Harvard or have the seat of power in Wall Street, to know that one cannot keep taking debt forever to finance excess spending over one's earnings. While the United States may not default, at least technically because it can inflate away its debt by printing money, the resulting loss in value of the dollar would essentially mean a default to the lender.

The fact that Moody's and Fitch have not downgraded their credit rating has no meaning (weren't these the ones, including S&P, which were merrily rating stacks of sub prime junk mortgages as Triple A and when the bubble burst testifying that the rating was merely their opinion and investors were essentially foolish in believing them). Confidence has been shaken and that is enough to strike fear in the hearts of the investors.

Now, in the last few years during each recession, the risk averse investors took shelter in US treasuries. Where will they park their money now? Gold is one easy choice. Emerging markets anyone?

Tuesday, August 02, 2011

Aptech Is Up For Sale?

CNBC reported today that Aptech may be up for sale, and that its promoters may be eyeing partial or complete exit.  Rakesh Jhunjunwala, often dubbed India's Buffet, holds over 32% in the company and stands to make a decent return over his investment of 6 years. At its current price of 135.80, the company has a market cap of Rs 6.62 billion (Rs 662 Crore). However, I believe that any deal would be tough and here is why:

Aptech, which acquired MAAC last year, to increase its leadership in the multimedia training business in India, derives bulk of its valuation from its investment in China (BJB Career Education) where it holds about 22 percent stake. BJB had filed for a US listing but plans were deferred due to market conditions. It was also rumored that BJB's recent performance (or lack of it) and material difference in numbers on translation of accounts from statutory to US GAAP before filing may have been the real reasons the listing did not go through.

Which is what makes any deal very difficult. Even if a private equity or strategic investor were to believe that it can drive the India business of Aptech (which would be difficult, as it faces tough competition from market leader NIIT and a string of other new players with deep pockets, including Pearson (JV with Educomp) and Everonn), it would not have any control on the destiny of the China investment except hope to cash out, as and when the IPO happens. A portfolio investor can take such a bet but not a private equity or strategic investor which wants control. 

Monday, August 01, 2011

Sticky Inflation In India - Quick Question

This may be a novice economics observation but I am curious to know if the current monetary tightening in India is going to solve the problem of inflation. It is oft-repeated that prices have risen because of supply side issues. The logic of monetary tightening is that it would lower demand, lowering pressure on price. However, if it is supply side constraint, demand may slide down but supply would be further lowered. This would lead to sticky inflation even as growth (proxy for demand) expectation gradually decreases, as we are witnessing today.

There is probably no magic wand, but India need to work on the structurally improving supply by improving infrastructure and eliminating delays and inefficiencies in the system. With government muddled in one crisis (read scam) after another, reform process has come to a screeching halt. 
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