Seeking Alpha

Tanmay Purohit's  Instablog

Tanmay Purohit
13 Followers
3 Following
Send Message
Tanmay Gopal Purohit is a stock market analyst, studying Indian markets and global commodities at times. He completed a CFA from ICFAI.
My blog:
Tanmay Observes!
View Tanmay Purohit's Instablogs on:
  • ABB Open Offer - Would you buy NOW?
    Promoter of ABB Ltd have offered to buy 48.51 million shares, or 22.89%, in the firm from shareholders at Rs 900, a 8.8% premium to CMP of Rs 826.
    The offer by ABB Asea Brown Boveri Ltd and ABB Ltd (Switzerland) will launch on July 8 and will close on 27 July, HSBC Securities and Capital Markets said.
    ABB Asea Brown Boveri Ltd and its unit ABB Norden Holding AB together holds 52.11% in ABB Ltd, the advertisement said.

    Back of the envelope calculation:
    Is their any arbitrage available or should one buy taking open offer into consideration?
    • ABB current price = Rs 826 e.g. 100 shares are bought.
    • Currently ABB holds 52.11% and it has offered to buy 22.89% more which would take their stake to 75% in India unit. So it makes a 47.8% probability that our shares would get tendered in Open Offer.
    • So if one buys 100 shares, approximately 48 would go into open offer and he will get payout @ Rs 900/share.
    • Net Profit on tendered shares = (Rs 900 - Rs 826) X 48 = Rs 74 X 48 = Rs 3552/-
    • Net Profit = 4.3% on total capital invested, decent returns for holding period of around 2.5 months!
    But history tells us something else -
    RANBAXY shareholders were given a similar open offer which was way above its market price at that time and it was at Rs 737/share from Dai Ichi Sankyo of Japan while shares were ruling at Rs 550 at time of announcement. The stock has never risen to those levels now almost 2 years have passed, those who bought in anticipation of open offer got payout for small number of shares and larger part of holdings is still stuck.

    Then why do foreign companies give open offers?
    • They are investing in businesses and not at all interested in small short term gains, they think of 5-10 years in advance minimum and bet on future of the economy which a common retail investor doesn't do.
    In case of ABB the open offer price looks really stretched as the company is already trading at a P/E multiple of 62 and at Rs 900 it would go beyond 67 which is not at all cheap by any stretch of imagination.
    • ABB has reported an average decline of 34.5% in profits for the past four quarters ended December 2009. The performance has taken a further sharp blow in the March 2010 quarter, with profits falling by 92%. The company’s financial performance has been disappointing mainly due to its exit from a key business segment, delays in some of the projects and fluctuation in input prices.
    • Company imports nearly 40% of its raw material requirement and is exposed to a large foreign exchange risk, it has to follow an active hedging policy which may be lacking so far. Recent rupee appreciation may hurt financials more.
    • The probability of giving shares in open offer may go down also as public holding currently stands at less than 15%, which means that the company would have to convince the institutional investors, who hold a total of around 33%, to respond to the offer.
    • Looking at company prospects in immediate future and history of similar open offer it looks wise to take profits at Current market price or have small exposure as stock may fall after the event is over. Even an 8% drop from current levels would take the investor into losses if one buys from the viewpoint of open offer now. If parent doesn't have intentions of de-listing, profit for the investor is not guaranteed by any Open Offer.
       


    Disclosure: NO HOLDINGS
    Tags: ABB
    May 26 7:06 AM | Link | Comment!
  • ONMOBILE Rs 392 Buy for targets above Rs 450 in short-term - Tanmay G Purohit

    About ONMOBILE:-
    http://www.onmobile.com/
    • OnMobile is one of the largest white labeled Data and Value Added Services [VAS] companies for Mobile, Landline and Media Service Providers. OnMobile’s 360° approach offers the entire product line across all mobile access channels like Voice, SMS, WAP, USSD, On-Device Portal & Web. The current product suite includes Ringback Tones 2.0,Voice, Wap, Sms, Ussd Portals, On-Device Portal & Handset Clients, Mobile Marketing, Media Portals & Interactive Tv, 3G Applications & Vas, Say & Search, Phone Backup, Phonebook 2.0 & Anti-Theft.
    • Call rates are down to 1 paisa per second and now Telcos may concentrate more on Value Added Services (VAS) to increase margins, ONMOBILE is an experienced player in VAS segment.
    • 3G Auction is scheduled to begin on April 9th and already top Telcos have submitted their bids. ONMOBILE's presence in 3G application space would benefit immensely after 3G connectivity starts.
    • Mobile phone market has exploded with entry of new players like KARBONN, LAVA, INQ, LEMON and many more which are flooding the market with cheaper choices and make mobile handsets more affordable for those who can't buy expensive handsets. This would improve demand for softwares such as Anti-Theft and Backup.
    Technical View:-
    The stock has consolidated between 415 and 357 for the last one month and a breakout above Rs 410 would take it higher towards Rs 450/490 also. Buy as investment.
    ONMOBILE graph


    Disclosure: No Positions
    Mar 21 9:01 PM | Link | Comment!
  • Weekly Nifty Update 20 March, 2010 by Tanmay G Purohit

    Nifty has closed positive (+125 points) at 5262 positive close 6th week in a row and Nifty has broken out above 5150 this week which has given a strong closing for the index. Nifty January high at 5310 is the highest point in last 24 months and once above that rally would strengthen more but failing to crossover would be a sign of caution for longs. Weekly graph shows a channel formation and above 5320 a move towards 5400-5425 is not ruled out. Nifty has to maintain 5170-5200 levels to remain strong this week and below 5100 major weakness is expected. This is expiry week as March-2010 contracts would get squared off Thursday and if Nifty touches around 5400 this week a reaction from there looks probable so caution is advised at higher levels.

    Stock Performance: - It was a week of TELECOM stocks where IDEA rose 14%, RCOM 6.6% and BHARTI AIRTEL 4.2%. RELIANCE IND, the biggest heavyweight contributed to the fullest as it rose nearly 7% this week and nears important resistance at Rs 1100 above which the stock may become stronger for higher levels. METALS followed TELECOM as TATA STEEL, SAIL and HINDALCO gained more than 5% each.

    Advance Tax Numbers: - Q4 Advance Tax numbers were released this week and it indicated higher taxes from many companies, BANKING companies lagged in those numbers but SBI was top tax-payer overall; RELIANCE, TCS, MRPL and INFOSYS showed good numbers.

    RBI Rate Hike: - WPI touched 9.89% in Feb and Food Inflation at 16.3% has made RBI surprise markets with sudden repo and reverse repo rate hike on Friday evening by 25bps. Many expected the rise to happen in April annual policy meeting but this can have a negative reaction for banking stocks and REALTY, AUTO can also be impacted. Market is not ready to move higher for the last 3 sessions and if it continues the fall may materialize once again and this time the correction can be bigger also. Stock-specific approach is only advisable. Around 1,800 companies on the Bombay Stock Exchange (BSE) are trading at or near their 52-week highs but large caps are failing to perform so caution is warranted at current levels.

    Stocks Looking Good: JUBILANT, AREVA, BIOCON

    Weak stocks: KOTAK BANK, ACC, LIC HSG, M&M, MARUTI,

    Supp 5205/5110/5030 Res 5320/5425/5500
    Weekly Nifty Chart



    Disclosure: POSITION in RELIANCE, BHARTI AIRTEL
    Mar 21 8:53 PM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Bullion, Gold
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.