Monday, September 26, 2011

Aptech For Sale?

The news of Aptech being up for sale has been doing the rounds for a few days now. Here is my (re) take on why the deal would be difficult. Bulk of Aptech's 600 Cr market cap can be attributed to its investment in China (22% stake in BJB career education). Buying Aptech would be tough for a strategic investor  (unless BJB itself were to buy out Aptech to gain entry in India)

Any private equity investor would face two scenarios
a) No clarity on IPO of BJB career education:  Private equity guys hate uncertainty and and since Aptech has a minority stake in BJB Aptech would have a limited say in getting it to IPO. Also, a PE investor in Aptech would not be able to perform due diligence on BJB which forms the major part of the valuation making the deal virtually impossible

b) There is certainty on IPO of BJB Career Education:  In such a case, Rakesh Jhunjhunwala is better off waiting for the IPO to happen rather than selling out pre IPO.

In my view, best case scenario for Aptech, if possible, would be to sell off its stake in BJB pre IPO to a private equity player (would happen at a discount to IPO price). Pay out the proceeds as dividend and then sell the company.  Selling off stake in Aptech before the above happens would be very difficult unless done at a discount to current market price.

Tuesday, September 20, 2011

Google Doodle Wants You To Try Google Plus

Google is making a big push for Google Plus (Google+). Just sign in to your google account and go to Notice the big arrow, almost forcing you to try out Google+. This is communication/marketing at its unabashed, purest best.

Monday, September 19, 2011

Buffett Tax

President Obama intends to impose a Buffett Tax on wealthy Americans after Warren Buffett said he found it absurd that his tax rate is lower than the tax rate of his secretary and that he is willing to pay more.  Obama's new proposals seek to impose minimum tax rates and remove loopholes in tax code by lowering deductions available to people with over 1 million in annual income.

The president hopes to increase effective tax rate for wealthy Americans. Even though those earning more than 1 million dollars annually fall in the 35% tax bracket, income from investments is taxed at 15%. Given that major part of earnings of the wealthy is from investments the current effective tax rate is lower for them.

However, there is also a line of thinking that the effective tax rate, calculated as above is not correct as the companies (where the wealthy have investments) are themselves taxed at much higher rate (marginal rate is 40%) and the 15% taxes on dividend income is over and above the corporate tax already paid on income earned. In effect, the actual effective tax on income from investments is as high as 40% + 15%*(1-40%) = 49% and not 15% as calculated by Buffett (unless his companies are exempt from paying taxes)

Saturday, September 17, 2011

Why is the world facing an economic crisis?

Just trying to make sense of the current economic turmoil that the world faces today. 

1. The developed world has a problem of low growth. What makes things worse is that many of the developed economies are over-leveraged. 

2. Because of the de-leveraging there is going to be lower cash for reinvestment delaying the onset of growth. 

3. Given the fact that many countries (in the developed world) are trying to de-leverage at the same time compounds the problem. The world is counting on China and India to pick up the slack in demand but that may not be enough. 

4. While China is large much of its economy is dependent on exports to the developed world and exporting to China is not the simplest thing to do. And India is struggling with high and sticky inflation and policy makes are having a tough time trying to reduce inflation as well as maintain growth. 

5. While the world may have the capability to emerge from this crisis without a string of defaults, given that the alternative is on the table makes it even more difficult to do so. This is like a bank which may have capability to avoid bankruptcy but is likely to fail because even a perceived risk may cause a run on the bank. 

6. There is risk of sovereign default by a number of countries in Europe with many even predicting a default by United States. The fact that many large economies are in a similar position a default by one could trigger a contagion by triggering pulling out of money by investors or raising borrowing costs even more. While United States may not technically default as it can print its own dollars, monetization of debt would lead to severe devaluation of currency and cause havoc

7. And so the cycle continues.  

Governments worldwide are trying to breakout of this vicious cycle, through injections of Quantitative Easing but last couple of rounds have not helped and because of the already high debt there is only so much these countries can do. 

Monday, September 12, 2011

The Curious Case Of Manipal University!

Manipal University has inducted Mohandas Pai to help turn itself into a global business of scale. Only time will tell whether Mr Pai (former CFO of once revered Infosys) would be able to do that at Manipal only time will tell. However there are more than a few things that I am amused as well as curious about.

First the company (for profit) that is being talked about is Manipal Universal Learning (MUL) and not Manipal University (MU)(not for profit trust) so its amusing to find the two names being used inter changeably in common and business media.  Another curious thing and partly amusing is that the valuation of MUL (in every media report)  is still one billion dollars. I have been hearing about this for the past 4 years and it is still the same. During the period, Educomp rose from $ 0.5 billion in terms of market cap to over $2 billion in valuation and has come crashing down to less than $0.5 billion despite growing the business to over 5 times . Wonder what MUL has done during the period. But I guess being unlisted has some advantages in preserving valuation

Was reading a recent article on moneycontrol ( on Manipal's new course of action. What amuses me is that the very same things (capitation fee, NRI quotas, profit in education) that are derided elsewhere are very conveniently made to sound like panacea for the education sector. May be they are, I am not passing any value judgement however I am amused at the contrast of views expressed with such ease.

To be sure, for-profit companies in India still cannot legally (atlease not directly) run formal education institutes. Even MUL mostly owns universities outside of India (50% of the business on last count) . Of the remaining majority comes from running learning centers for Manipal Sikkim University (legal on paper but not sure if it is in the spirit of the law).

Also given the deficit of corporate governance in India's education sector wonder if MUL would gain more from Mohandas's clean image thanks to Infosys or Mohandas's image would be affected. I am curious if he would gain anything from speaking to a certain JJ Irani about his recent experiences at at the helm of  a listed  education company, that was increasingly being touted to be the next big thing.

Thursday, September 01, 2011

JJ Irani Resigns as Chairman of Everonn

JJ Irani, who was roped in by the company to improve its image in terms of corporate governance, has resigned from the Board following allegations of graft against the MD.

Its a huge blow to the company. The stock is stuck today at the 20% lower circuit with no buyers. 
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