Senseless Market

With a PE of 24, the market is continuously overpriced, but what surprises me more is the innings duration. Normally markets are about an "Perceived Absurd" level for 1-2 years, but we have already crossed that 2 year of sweet period.

I am still wondering - When will the market crash? Markets can stay stupid for long

Personally, there is no entry place in the market above a PE of 20. So, wait and watch. I will wait for 7500, to make myself a contender, for long positions.

Till then, wait for ............................

DMART IPO - Why I believe that analysts are wrong ?

This reminds me of the INOX IPO, with lot of similarities, which was also managed by a lot including Edelweiss Financial Services

I am surprised how fast people forget things

Net proceeds from D-Mart IPO will be used towards

1080Cr

1. repayment or prepayment of a portion of loans
2. Redemption or earlier redemption of Non-Convertible Debentures (NCDs)

366 Cr for

3. Construction and purchase of fit outs for new stores

350 Cr

4. General corporate purposes.

Good part = There is no OFS, and everything goes to the entity

Bad Part = the existing common stock is overpriced

My sniffing nose

1.      This dude, Damani want to sell equity, but never sold even part of the equity before this. That too, when this guy was well entrenched in financial world. Am I missing something here??

2.      Presence only in Gujarat / Maharashtra – Though good for focus but show me the potential for growth of same model outside these states as these states are already saturated.

3.      Cluster approach – Good for initial part, but will be really hard to replicate, where will the growth come from

4.      Never closed any outlet due to lack of profitability – Are you crazy? Are you really running business successfully? I seriously want to see the store wise numbers.

5.      Location+Infra – Densely populated area + Ownership / long term lease. There lies the problem, how are they amortizing costs, accounting of the cost of acquisition of real estate. I have to read between the lines of those depreciation / amortization numbers

More than 90% of their stores are owned and less than 10% leased

Their sales per sq ft is 

Dmart =22

Reliance = 15k

Future = 7.5

The analyst are going crazy about this, but wait, they perhaps don't know the predominant formats of these companies

Dmart stores are very small, compared to even Reliance

Point is they are paying higher CAPEX also, which analysts are perhaps ignoring

Lets look the numbers

Consolidated financial performance (in INR crore)
	FY2012	FY2013	FY2014	FY2015	FY2016
Total revenue	2,222.4	3,355.1	4,702.3	6,457.7	8,606.1
Total expenses	2,134.0	3,214.2	4,457.4	6,134.3	8,113.9
Profit after tax	60.4	93.9	161.4	211.7	321.2
Profit margin (%)	2.7	2.8	3.4	3.3	3.7

Revenue = 2200 in 2012

8600 in 2016

That implies = 400% in 4 year, crazy,

That too on a model when they claim  - “Location+Infra – Densely populated area + Ownership / long term lease”

It seems there is something wrong here, only one of them can be correct, either the revenue or the model

Adding to this, profit of 321 cr on 8600, I have done retail before, expressdwarka.com and it was literally asset free retail,

I can tell on face of it, 321/8600, seems like a blatant lie with 4% net margin on “Ownership Model”

(based on my experience of running the asset like expressdwarka, achieving even 3% is challenging)

Even if we trust the numbers, the PE is not justified with ROE of 20% in last 3 years

Priced at pe of 52.6 will take 1800 cr

FY 2016 , EPS = 5.7

Future Retail

PE = 30

Mar ' 16	Mar ' 15	Mar ' 14	Jun ' 11	Jun ' 10
Per share ratios
Adjusted EPS (Rs)	0.27	-0.63	-1.20	3.53	6.01
Adjusted cash EPS (Rs)	13.05	11.74	16.26	10.27	13.86
Reported EPS (Rs)	0.27	1.79	0.12	3.53	8.71

With a share price of 254, the current EPS, has increased due to payouts (which management manages) in last year. I strongly believe even Future Retail is overvalued, 

Conclusion

I have nothing against the business model and it sounds like a good company. But I have deep apprehensions about the numbers. Somehow the operating model and numbers are not matching

Buy / Sell - May be buy till 500-800, hold till 1000-1200, and then sell

Update 

Last time, I was whining about the share price of INR 1000 for this company. This company crossed INR 1200 today. I have my fingers still crossed.

Update
This stock crossed 1500, what is this ? Are people crazy to give this valuation ? 

Sindhi Dryfruits, Lajpat Nagar and Black Money

I said - "I want bill for full amount of 5700", he said "Sahab 5% VAT extra lagega". I said " Nahi ji bill chaiye"

Everyone stared at me as if I am doing a crime, by asking for bill.

That was Sindhi Dry Fruits, Lajpat Nagar.

Not only this shop, there are many other shops, which display promptly, "5% Extra for VAT for Card Payment".

Where are the Tax inspectors ?? Deep investigations needed.

Guesstimate 

Average Invoice at Sindhi Dry Fruits = 5000 (based on experience)
Avg. no of orders per counter = 1 per 3 mins = 20 per hour
Total orders per hour for 3 counters = 60 orders per hour
Total sales per day = (6+4*.5 for lean) = 8*60*5000 = 24 lacs per day = 7.2 cr per month = 84 Cr per year

VAT Tax avoided = 5%*.8*84 (80% transaction w/o tax) = 3 Cr
IT Tax Avoided = 8 Cr (assuming margins of 30%)
Total Tax loss to the Nation = 11 Cr


That is just one shop in Lajpat Nagar. There are 1000 other which use similar tactics and that too openly. We can do another guesstimate with data like mega, big, small and footpath shops etc.

But ultimately, Lajpat Nagar itself leads to a loss of around 500-1000 Cr to the nation. This is very much in Delhi, right under the nose of the all investigating agencies.

Where is the gap in enforcement? Is it intentional or just a miss??

5 biggest regret people have before they die

There is a very thought provoking book, I plan to read

https://www.amazon.com/Top-Five-Regrets-Dying-Transformed/dp/140194065X/

The Top Five Regrets of the Dying: A Life Transformed by the Dearly Departing

It is really soul searching. I would perhaps like to list them myself

1.       I wish I pursued my dreams and aspirations, and not the life others expected of me

a.       Sometimes, I look back and think that I could have better pursued my dream of entrepreneurship, long back. There was no need to waste so many years, just trying to prove myself

2.       I wish I didn’t work so hard

a.       Being ambitious is perhaps a curse on life, if it overshadows me. I felt that when I was in US and was alone

b.      I made some career  decisions, where I had to ignore my family

3.       I wish I had the courage to express my feelings and speak my mind

a.       I could not resist the fear of confrontations mostly from my better half as I don’t want to destroy peace of my life

b.      I could have spoken more courageously against some of the decisions, to which I have submissively agreed, especially regarding parents and child

4.       I wish I had stayed in touch with my friends

a.       Yes, that is perhaps one of the biggest regrets

b.      I didn’t get chance to meet face to face to my closest friends for long Vishnu, navin, rajiv and many others, its horrible, if things go on like this

5.       I wish I had let myself be happier

a.       I often got confused between happiness and many other things in life

b.      Perhaps the burden of so many aims, aspirations and images, overshadowed it

Can I live without regret, Yes

1.      Vacate Space, empty mind and de-clutter life

a.       Actually with minor adjustments, things can perhaps tough in the beginning but the space will increase the degree of happiness for sure

b.      I don’t need so much money to live happily.

2.     I will avoid Procrastinate regarding

a.      Ideal and obedient child and life partner

b.     Ideal career

1.      

Risk to the demonetization scheme and solutions

Demonetization is an excellent and laudable step, but as said wisely, "Devil lies in the details". Somehow the bureaucrats responsible for executing the scheme, seems to have been clueless about some of the ground conditions, such as

1. Banks are free to open new account without any centralized verification of data
2. There are lot of fake Jan Dhan accounts, which were opened by banks, to meet their targets. 

These 2 factors have led to creation of multitude of fake accounts.

Example 1 - Bank Manager colludes with a business man and opens 200 accounts on the basis of fake documents with no verifiable details and fake address. Simply the business man will deposit money in those fake accounts

200*say 2 lacs each = 4 Cr deposited

Use withdrawal slips and withdraws 20k daily from each account. He will be able to convert his black into white in 10 working days

Example 2 - Bank Manager knew he has created 1000 fake Jan Dhan Accounts to meet his targets in the past. He looks around and colludes with his favorite customers to convert black into white


Consider this, there are 8 Cr JD accounts and most of them are with dubious details. Even with a highly optimistic estimate, at least 30% of them are either fake or non-verifiable. So, 2.4 Cr fake accounts. This is very dangerous for the scheme.

Solutions needed to be implemented with immediate effect

1. Banks should be barred from opening any new account without verifying address physically and without PAN card
2. JD accounts should be barred from any transaction beyond 10k per month. If someone wants more limit, let them have regular accounts or they would already have that, if they have more than 10k income. 
3. Set examples and create detterence by sending notices en-mass and do some arrests of bank managers also, so that the whole banking community, gets the message, loud and clear

Hack of using ATM in Indian Cash crisis

Use a variety of methods

1. Talk to gaurds of ATM, if they belong to a security company
2. cashnocash.com - useless most of the times

Biggest hack is use the night time, around 10 PM and then once you have drawn 2500 per card, again join the line. After 12 PM, you will one more chance. 

Was the scheme of demonetization leaked, 15 days beforeho

There have been lot of media news and clippings of news papers doing round that the whole plan was selectively leaked to a select few people and groups

Who is brijesh dubey ? where did he got information from?

Govt. need to answer these questions, so that the conspiracy theories going around can be stopped.  

Demonetization - Good/Bad and the future

First of all, this is not the first time, demonetization has been done. The major difference this time is that the currency value is very less. 1000 ruppee at time of Morarji Desai = 10 lacs now (perhaps)

Evaluation - Good Part

1. It was well kept secret. Indira failed in this test. She perhaps had a mole.
2. RBI was kept in sych
3. well shielded secret = NDTV was perhaps falsely created and Govt. never meant such extreme step, US election sheilded warth of international media
4. Weekday choosen - Weekend shopping not disturbed, enough time and resource at hand at bank
5. Illegal and fake currency game will be halted for a short while. 

Evaluation - Not so good part

1. Jewelry shops were not closed for say 3-5 days
2. Too much of time has been given - 3 months (Come on, don't think people are that stupid that they will not be able to convert black to white in 3 months)
3. Loop holes in terms of corrupt bank officials esp. private banks. Here small time managers, are doing lot of money minting by opening fake accounts or dubious accounts without PAN or invalid PAN. 

What can be done right now?

1. Announce to deposit notes within 15 days, say by 20th of November. Left out people can still deposit after 15 days, but with greater scrutiny.
2. People should not be allowed to deposit more than 1.5 times of last year income as per ITR. If someone still wants to do, a special process should be followed
3. Close jewelry shops for 5 days
4. Banks should be asked not to open any new accounts in next 15 days, without special requirements approved by say zonal managers etc. 

Overall Evaluation 

It is really a good scheme and pending for long time. Baba Ramdev negotiated for this masterstroke in 2011, with Congress. But the scheme was not designed well. Though there are enough knowledgeable people in the Govt. and it is easy to think in the hindsight than in foresight, Govt.and RBI need to become more agile and adaptable and keep on changing tracks, so that all the loopholes are plugged.

Future

Common people will embrace digital currency. Small entrepreneurs will find it comfortable to deal with digital currency. Bureaucrats and Politicians will forced to find new and legal ways to park money. Big businessman will have business as usual and will have minor tinkering in just their business models.

One major impact could be cleaning of black money in daily life. It will continue like that only in elections. CA's will get higher demand for innovating accounting books.

Yes, one more interesting impact, ISI has to burn their existing inventory of INR and print new lots. They will also look for more innovating ways in future. 

A relatively silent Diwali

Good news for India, mass education programs seems to be working.

This time, Diwali was relatively silent. It is still very toxic and makes sense to close the door with AC unit on, but atleast it has been marked improvement from last year. 

How long can the markets stay stupid?

"You can fool some of the people all the times, but you can not fool all of the people all the times".

Stock markets have one metric, which everyone agrees on, is the thermometer for them - PE ratio. Though I personally dont agree with this (i prefer EV/EBIDTA, sum of parts, as they capture interest of all the stakeholders in the ecosystem), but there are some hard proofs

(https://craytheon.com/charts/nifty_pe_ratio_pb_value_dividend_yield_chart.php)
This link states, we are at PE of 24.5

Some of these estimates point that any long term investor will loose 30% of their portfolio in long term, if they invest now in Stock market.

Simply the market is stupid. Everyone knows that we are in stupid territory of the market. But how long, we will be here ?? This is the biggest question and its answer lies in following factors

1. Alternative Investment Channels 
• Real Estate - will remain in doldrums due to peak valuations
• Lending - Black money has been curtailed, so returns limited here
2. Interest rates - Historic low
3. Growth Estimate of the underlying economy - Decent atleast for India due to Modi and the Monsoon is the topping on the cake
4. Global factors - This is the only factor, which is really complex to analyse

Any predictions will be futile, without having decent estimate of each and every factor. But with the assumptions that there will not be any adverse global scenario - Markets will remain stupid for some more time. 

We are again stuck on the question - How long??

Fundamentally, the DCF of dividends should have been the value of the underlying security. But this strategy might be good for US but not so for India due to the following reasons
1. High DDT (around 17% div dist tax)
2. Very less avenues for pass-through (such as REIT and Yieldcos in US)
3. Very high taxation in India - Due to high taxation, people- both shareholders and the promoters, want to hide - white income (though it is similar in US, but its perception, that US Govt. is good manager, while Indian Govt. is like a corrupt manager, so India charges too high for tax)

Now, consider the alternatives for investors
1. FD - lower interests day by day
2. Bond Market - Underdeveloped

OK, let's do the comparisons now
PE of FD of say 8% = 100/8 = 12
PE (avg long term, stock market) = 14
PE (Currently secured bonds of good rated companies) = 7-8%
PE (current market) = 25

Booms are brought by retail investors and the bursts are bought by the institutional investors. Sure, institutional investors are clever enough, they ride the boom and profit from it and then they say at one point of time that markets are about to loose steam and they will say, lets park our cash (FII will do so in US treasuries, once they increase interest rates)

One very good alternative, which is evolving is NCD of relatively secure companies.
PE of Corporate Bonds = 100/11 = 9 (say ..decently secure.... Muthoot N6 unsecured NCD ). The institutional investors are going to park their money in these NCD's and wait for the market to collapse on its own weight. NCD and term papers will take atleast 6 months to develop, till then market may remain stupid or may be even more stupid.

From here, the market, can go upto say PE=28, as there is no negative sentiment in the market till now, but if the balloon swells to PE=30, then it is going to burst for sure. For the moment wait for PE=21-22, and then invest again till market again go to PE=24-25. Keep on investing and exiting in this narrow range, till it goes beyond PE=25, and at that moment, switch off the trade account and shift everything to FD/NCDs. But beware of NCDs of the NBFC's especially the one in real estate or with any kind of link to real estate or long gestation equipment finance such as DHFL, Indiabulls, SREI as they might have lot of hidden transactions. Beware of Infra/Housing (not low cost housing) - lot of aggression and chances are people are making mistakes in biddings.

It will somewhere around March 2017, that market will loose steam as institutional investors, will stop buying shares at sky high valuations, which have already been deserted by the long term investors like me

Wait for March 2017 and merry profits till then!

How long can the markets stay stupid?

"You can fool some of the people all the times, but you can not fool all of the people all the times".

Stock markets have one metric, which everyone agrees on, is the thermometer for them - PE ratio. Though I personally dont agree with this (i prefer EV/EBIDTA, sum of parts, as they capture interest of all the stakeholders in the ecosystem), but there are some hard proofs

(https://craytheon.com/charts/nifty_pe_ratio_pb_value_dividend_yield_chart.php)

http://historic-pe-ratio.weebly.com/

This link states, we are at PE of 24.5

Some of these estimates point that any long term investor will loose 30% of their portfolio in long term, if they invest now in Stock market.

Simply the market is stupid. Everyone knows that we are in stupid territory of the market. But how long, we will be here ?? This is the biggest question and its answer lies in following factors

1. Alternative Investment Channels 
• Real Estate - will remain in doldrums due to peak valuations
• Lending - Black money has been curtailed, so returns limited here
2. Interest rates - Historic low
3. Growth Estimate of the underlying economy - Decent atleast for India due to Modi and the Monsoon is the topping on the cake
4. Global factors - This is the only factor, which is really complex to analyse

Any predictions will be futile, without having decent estimate of each and every factor. But with the assumptions that there will not be any adverse global scenario - Markets will remain stupid for some more time. 

We are again stuck on the question - How long??

Fundamentally, the DCF of dividends should have been the value of the underlying security. But this strategy might be good for US but not so for India due to the following reasons
1. High DDT (around 17% div dist tax)
2. Very less avenues for pass-through (such as REIT and Yieldcos in US)
3. Very high taxation in India - Due to high taxation, people- both shareholders and the promoters, want to hide - white income (though it is similar in US, but its perception, that US Govt. is good manager, while Indian Govt. is like a corrupt manager, so India charges too high for tax)

Now, consider the alternatives for investors
1. FD - lower interests day by day
2. Bond Market - Underdeveloped

OK, let's do the comparisons now
PE of FD of say 8% = 100/8 = 12
PE (avg long term, stock market) = 14
PE (Currently secured bonds of good rated companies) = 7-8%
PE (current market) = 25

Booms are brought by retail investors and the bursts are bought by the institutional investors. Sure, institutional investors are clever enough, they ride the boom and profit from it and then they say at one point of time that markets are about to loose steam and they will say, lets park our cash (FII will do so in US treasuries, once they increase interest rates)

One very good alternative, which is evolving is NCD of relatively secure companies.
PE of Corporate Bonds = 100/11 = 9 (say ..decently secure.... Muthoot N6 unsecured NCD ). The institutional investors are going to park their money in these NCD's and wait for the market to collapse on its own weight. NCD and term papers will take atleast 6 months to develop, till then market may remain stupid or may be even more stupid.

It will somewhere around March 2017, that market will loose steam as retail investors, will stop buying shares at sky high valuations, which have already been deserted by the institutional investors.

Wait for March 2017 or may be March 2018 and merry profits till then!

Finally PepperTap announced its demise

It proves our model at expressdwarka.com was the best

How IAS culture is hampering growth of India

I was going through one article

https://latasinha.wordpress.com/2012/01/04/ias-and-non-ias-services-under-government-of-india/

Well the author has nicely combed the past and future and the imperatives of current era

Frauds and miscommunication like Migsun Wynn in Real Estate in north India

Real Estate industry is going through slump and more so will happen after the sudden spurt of supply, which will come after the new bill.

Many of the builders like Amarpali have cheated people's money by projects like Hanging garden, Aawas Yojana etc.

Now a new project by Migsun Wynn has come. They advertised the rates as 1699 per sq foot, but consider these factors

1. It is rate of 25th floor
2. 25 floor storey building will sell on discount when most of the projects are 10-12 floors
3. The builders has released only very small portion of the full 8 acre plot and existing plan is very crowded
4. Cost of finishing of 300 is not included
5. Club fees is exhorbitant

Considering all these factors, cost of this project works out to be around 3000 on 10th floor, which is too high, as per current market. 

Amarpali La Residential is selling at 28 lacs (all in)

Steller Mi is selling for 30.5, all in 

So, the market is going for correction. Prices in Noida, especially greater noida are going to crash. Prices will return to the level of 2000 per sqft in Greater Noida as the supply is too much to be consumed anytime soon. Once, banks tighten noose, many of them will default and reduce the rates further. 

Advise to retail investors - Wait for 6-12 months, till you see bankruptcies

Sociocracy - Future of Organisation Management

We have learnt a lot about OB (Organization Management) during MBA classes. I remember a course I took at Keenan Flagler Business School was about roles and behavior in groups especially in business settings. This theory and practice form the basis of our basis of understanding of the so called "IDEAL ORGANISATION BEHAVIOR"

But this ideal OB has some inherent problems such as

1. Most of the things are driven from the top
2. Most of the people in the middle and lower ranks feel themselves as dis-empowered
3. Job descriptions are very rigid and people have little flexibility around them
4. People at the lower hierarchy feel that some of the decisions are not transparent. 

All this rigidity leads to issues in re-organisation or any change in the Structure of an organisation. Lack of transparency is more dangerous as this leads to - "SENSE OF DETACHMENT WITH ORGANISATIONAL GOAL". This is equivalent to "Sense of detachment from society" in sociology, which Durkhiem has famously coined as "ANOMIE"

Our large business organisation are not able to show effectiveness of  a startup due to this "Condition of Anomie" as described by Durkhiem.

But the solution to this lies more in something propagated by Weber in his organisation structure theory, but albiet on foundation of "Sociocratie" as coined by Auguste Comte, the father of sociology and my favorite among sociology thinkers.

1. Organisations have to structure themselves around roles
2. There should be complete autonomy within a role in terms of execution and implementation
3. Individual should be detached from the role he is handling

Individuals have to be replaced by the roles they do and the organisation itself has to be divided into a overlapping circles. This is something similar to "Organisation of Religious order", something similar to Hinduism. People (akin to roles) follow a religion, but they are independent to execute their form of worship. When I say, religion, it is more of a "loosely defined religion like hinduism / Cristianity" than as a "strictly defined religion such as Islam, which has very strict punishment for even those who leave it or dare to say anything about their god, even a picture or physical description".

NCR Real Estate market set for a crash landing with KMP

Palwal Manesar stretch of KMP is going to be inaugurated. What will be side effects

1. It will lead to a lot of supply of real estate in new areas such as Jhajjar / Bahadurgarh
2. It will make the hinterland of Najafgarh approachable from a new dimension altogether
3. L-Zone will become attractive as it will surely be connected to KMP in future

All this will lead to a supply glut in already over-supplied market leading to ultimate crash of rates in sectors such as Gurgoan, Noida etc.

Shocking PE of Kotak Mahindra and fallacy of Dividend Pundits in India

Castles in air are not built over night. It seems that the story around Kotak has taken a bit of time to build.

There is no denial to the fact that Kotak is perhaps best bank in India. They are also well placed to grow faster than almost everyone.

But then a PE of 60+ does not stand the test of reasonableness.

Another BS which one hears a lot now a day is the "Dividend should guide your stock selection". YES, this is correct, but not in India

Consider this, imagine EBIDTA of 100, then 33 as profit tax (assuming no depreciation), to declare dividend the company pays, 17% DDT
PAT = 67
CF to shareholder after Div = .83*67 = 55 (approx)

So, effectively the company is destroying value by declaring dividends, it is literally handing over the money to the "Government of India" not to the shareholders.

So, in a country like India, declaring dividends is not very wise steps. Then there are companies, which have found ways around. I have identified couple of these small and mid caps. 

BOB ( Bank of Baroda) - Over hyped or Justified

BoB is trading at PE of 16, while the other PSU banks are trading at mean PE of around 5-6. So, what explains this difference. Market (read analysts of big funds) say
1. They have done full provisioning of losses
2. Legacy - have no more losses to declare

This can justify a PE premium of say 20-30% but not 100%.

But perhaps markets are ignoring a fundamental issue. Have the current processes streamlined to get bank tame future NPA's. The plain answer is NO. BoB like other PSU operate by the same standards. Hence they are bound to get the same pace of NPA's again (even if we discount the UPA/NDA interference in bank operations). T

So, there seems to be bit of mis-information, which is being sold, instead of focusing on fundamentals. Correction is bound to occur. Waiting for trigger.

Petrol Pump - Is it a good business now

It was 2006, Reliance literally slaughtered the market share of PSU. A company which has just 1-2 years of track record, took 13% market share in 1 year of full fledged operations. PSU were clueless what to do. Thank god, that the PSU got a ventilator time when the price again zoomed and subsidy kicked in. With subsidy the kick backs again started in this dirty sector. The inefficiency and corruption within Oil PSU is none of a secret.

Now the wheel has turned again, prices are down for atleast next 5 years (and may be more if Elon Musk got the new Teslas firing). Private players are again pushing up their game

1. Essar is focusing on low volume outlets
2. Reliance on high volume

So, in a place like Rewari, where Essar has got 20 pumps in recent time, it hardly left anything for the new commissioning by PSU's. So, the market is getting crowded and competition is increasing. This will introduce margins squeeze for the PSU's which will squeeze the margins for the dealers also. In such a scenario, Petrol pump does not seems to a good business. 

World War 3 - Will it start from Alepo

I am keeping my fingers crossed but will take 3-4 days to announce if things are that bad.

Assad - Will not back out
Soleman - Shia need it back

Saudi/Qatar - Want to kill Shia hegemony
Turkey - after the kurds

Kurds has secret support from Israel and may be US

OMG...we forgot the ISIS.........so the war is going to be for display not for ISIS