How to assess company's future by tracking promoter shares

 

Promoters are generally the biggest shareholders in their companies. They are also the most clued in on the company's prospects. That is why investors must keep tabs on what they are doing with their shares. This is because it offers clues about what they think about the company's future. For instance, heavy buying may indicate that they think that the stock is undervalued. Besides, selling and buying by promoters leads to changes in prices of stocks and so must be keenly watched.

PROMOTER BUYING A BIG POSITIVE

For our study, we looked at companies in the S&P BSE 500 index. Of these, promoters increased stake in 147 companies in the four quarters ended March 2014. In 26, the increase was more than 10%. Since April, that is, after the increase, the shares of 140 out of 147 have risen in value. Of these, 15 have risen over 100 per cent after March 31.

Of course one can attribute this partly to the rise in stock markets overall, but increase in promoter stake is generally a good sign, say experts. Take Kesoram Industries, in which promoters increased stake from 27 per cent in March 2013 to 48 per cent in March 2014, a rise of 78 per cent. Since March, the stock has delivered a return of 66 per cent.

A promoter has all the information about the company. If he is investing, it shows that he is confident about its prospects and believes that investing in the company is better than putting money somewhere else.

"An increase in stake by promoters is a positive indicator. It shows that the promoters believe that the stock is trading below its intrinsic value," says Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

But experts say that while promoter holding is an important parameter, it should not be the main reason for buying a stock. Investors should always look for the reason for the stake increase. They must check what impact it will have on the company.

"An increase in stake is positive for investors. But it should not be the sole reason for the investment," says Ambareesh Baliga, an independent market analyst.

"Although an increase stake by promoters is a positive, investors should look at the reasons behind the move. He must ask the following questions. Is it time for delisting? Is there a corporate restructuring happening?," says DK Aggarwal, CMD, SMC Investments and Advisors.

Take Essar Oil, in which promoters have raised their stake from 16 per cent to 25 per cent. The reason for this is the company's plan to delist. A company has to make an open offer to the public if it wants to get delisted. Also, the public holding shouldn't be more than 10 per cent after the open offer for the delisting to happen. Therefore, to make the open offer successful, there is a high chance that the company may increase the floor price at which it offers to buy shares from the public. It will lead to a rise in the price of the stock and provide an opportunity to investors to sell at a higher price. Therefore, it is generally a positive for the investor.

Also, the increase in promoter's share because a big investor has acquired a controlling stake in the company is also a positive sign. For example, in Hexaware Technologies, the promoter stake rose from 28 per cent in March 2013 to 64 per cent in March 2014, a change of 128 per cent. Baring Private Equity Asia acquired a controlling stake in the company in September last year. "A big investor buying a stake is a positive sign," says DK Aggarwal of SMC Investments.

However, investors must keep in mind that an increase in promoter stake is no guarantee that the stock will rise. For instance, in United Spirits, the promoter stake went up from 25 per cent March 2013 to 39 per cent March 2014. The stock has fallen 9 per cent since then.

Also, selling of stake by promoters shouldn't always be considered a big negative for the company. The reason for the dilution may be regulatory changes. For instance, the Securities and Exchange Board of India, the market regulator, has come out with a regulation under which promoters can't own more than 75 per cent stake in PSUs. This will trigger a reduction in promoter stake in various PSUs.

However, a large-scale and unexpected exit by the promoter without giving any reason does warrant an explanation. "A promoter may sell his shares if he thinks the stock price has reached its fundamental value," says Aggarwal.

Although investors should take notice of large-scale exit by promoters, it may not necessarily result in the stock performing poorly. There are nine stocks in the BSE 500 index in which promoters reduced their stake in the one year ended March 2014. All have returned over 100 per cent since April. For instance, in Kingfisher Airlines, the promoter stake went down from 32 per cent in March 2013 to 16 per cent March 2014, but the stock has delivered a return of 60 per cent since March 31 this year.

Change in promoter stake is important but shouldn't be seen in isolation. Company fundamentals and valuations are equally important.

We bring you a few stocks recommended by experts in which promoters have increased the stake.

MAHINDRA CIE AUTOMOTIVE

Promoters increased stake from 53 per cent in March 2013 to 79 per cent in March 2014. The stock has returned 143 per cent since March 31 this year. The shareholders have approved amalgamation with Mahindra Ugine Steel Company, Mahindra Hinoday Industries, Mahindra Gears International, Mahindra Composites, Mahindra Investments (India) Private Ltd and Participaciones Internacionales Autometal Tresthe. According to an ICICIdirect.com report in June, "The company provides a unique auto component play with global footprint and promoters, besides turnaround possibilities. It has a presence in both commercial and passenger vehicles with strengths of dual parents. With cost controls and economic recovery playing out, we expect utilisation levels to improve, leading to rise in EBIT margins to 8 per cent and RoCE expansion to 14.5 per cent in 2016-17. The track record on turnaround via cost control and focus on financials are positives." EBIT is earnings before interest and tax while RoCE stands for return on capital employed.

SINTEX INDUSTRIES

Sintex is a dominant player in plastics and textile segments. The stock fell 8 per cent despite promoters increasing stake in the company by 13 per cent. A report by Maximus Securities in June says, "The company is likely to benefit from the rise in demand in the prefabricated segment and growth potential in the custom moulding segment. The new spinning project will bring in incremental revenues and operating profits."

KEC INTERNATIONAL

The promoters have increased stake by 11 per cent. As per a report released by Prabhudas Lilladher in June, "The stock is trading at 11.2 times 2015-16 earnings. We believe that a strong order book and improving margin profile will help the company deliver 12 per cent sales and 71 per cent earnings compounded annual growth rate between 2013-14 and 2015-16. We maintain 'accumulate' rating on the stock."

INDIABULLS REAL ESTATE

The promoters increased stake from 44 per cent to 49 per cent in the one year to March 2014. The stock has delivered a return of 71 per cent since then. As per a report by Motilal Oswal in April, "A number of high-value projects (Sky series, Blu) have kicked off in the last 12 months and are not yet contributing meaningfully to profits. Revenues from several such projects will commence over FY15-16, aiding 50-60 per cent profit after tax growth per year. Consequently, return on equity will rise to low double digits from the current levels of 5-6 per cent".

Source : Renu Yadav ; http://businesstoday.intoday.in

How Shyam Sunder Mundra turned Ujaas Energy into a Rs 500 crore business

How Shyam Sunder Mundra turned Ujaas Energy into a Rs 500 crore business 

After completing my graduation in electrical engineering in 1967, I landed a job with the inspection department of the Madhya Pradesh State Electricity Board in Indore. It was here that I first thought of doing something on my own in the energy sector because I took a liking to it. However, the journey to build the Rs. 500 crore Ujaas Energy was laborious and I had to ensure that I didn't lose focus on my other goals.

However, several years passed before a senior colleague helped me revive my dream. While I was working for the electricity board, I completed my masters in electronics and servomechanism (ME), in 1973, from the Indore University and then got an MBA degree in 1976. On clearing the latter, when I approached my senior to share the news, he told me that he had always wanted to start his own venture but couldn't, and that since I had shown enough promise to make it big, I should follow my dreams. 

This interaction changed my life for the better. I had saved Rs. 20,000 and, with this money, I started Vimal & Co, a consulting business where I would inspect electrical installations for private players and suggest changes for better infrastructure. I also hired 2-3 people to assist me. I signed the first deal for Rs. 8,000 in May 1976. The client was extremely happy with our report and suggestions. Soon, more such orders followed. Our turnover in the first year was Rs. 40,000. 

In those days, the state government had a scheme for unemployed engineers, wherein a project proposal meant that the government would help you procure a place and incentivise it in the form of subsidies. In 1979, we got a 15,000 sq ft space in Indore to open a manufacturing unit for control panel switches. I invested Rs. 1.5 lakh to start M&B Switchgears. The business was good, but we had to depend only on small contracts. The biggest challenge was paucity of funds for expanding operations as banks were not ready to give us a loan without a collateral. 

In spite of the odds, by 1991-92, our business had grown to around Rs. 40 lakh. However, I was not happy with this progress. Two years later, my older son joined me and we decided to convert our business into a partnership firm. The move helped us get a bank loan of Rs. 4 crore and, within a year, we started producing all types of transformers, including distribution, power, furnace or rectifier and special purpose transformers. By 2010, our transformer business was generating Rs. 18-20 crore. 

Meanwhile, in 2009, we carved out a separate company from M&B Switchgears and sold it off for Rs. 30 lakh. We also started planning the expansion of our business to other verticals and realised that solar power had huge potential. So, in 2010, we acquired 2.5 acre of land in Indore for Rs. 6 crore to set up a 2 MW solar power unit. We funded this project after getting a bank loan of Rs. 32 crore. In 2011, we decided to come out with our first public issue to raise around Rs. 93 crore from the market, which received a very good response. 

The money we raised helped us to set up a 4 MW solar photovoltaic power generation plant at Rajgarh in Madhya Pradesh. We also started helping companies to set up their own power plants. In 2012, we signed an agreement with the state government to set up 99.25 MW solar power plants at various locations across Madhya Pradesh. 

Source : By Amit Shanbaug, ET Bureau 

How a forced split of RPG Enterprises actually worked for Goenka brothers

How a forced split of RPG Enterprises actually worked for Goenka brothers 

“They've achieved more because of shaper focus & freedom to make speedier decisions,” says Anil Sainani, executive coach of Empowering Solutions. 

In August 2010, the late Rama Prasad Goenka interrupted his son Harshvardhan Goenka's holiday at a small village in Switzerland to seek his opinion on dividing up family businesses. The patriarch wanted to carve out his empire — then Rs 13,313 crore in sales and Rs 9,150 crore in market cap — between Harsh and younger brother Sanjiv.

Both brothers, who had informally been managing different companies from Mumbai and Kolkata, were against a formal split of RPG Enterprises. Their father, among earliest in India Inc to use acquisitions as a growth strategy, had built the empire-buying tyre, carbon black and engineering companies. And the sons wanted to keep it undivided. But the patriarch — he passed away in April 2013 — had seen the ugly spat between the Ambani brothers and made up his mind that a pro-active division of businesses between his two sons was wise.

"It (the split) is something that my father desired; neither my brother Sanjiv nor I wanted it to happen. It was literally thrust upon us...He has been telling us over the last two years, but we have been resisting it. But a day came when he made it a fait accompli..." Harsh Goenka said in a Bloomberg interview later. Both Goenkas declined to participate in this story.

In the ensuing division, Harsh got Ceat, KEC International, Zenstar and RPG Life Science. Sanjiv inherited CESC, Spencer's, Phillips Carbon and Saregama.

For a family partition of a 35-year-old business empire, this was a relatively simple affair. "Each company had its own individuality with chief operating officer and operational managers, so it was easy to align to two groups after the split," says Dr Sandeep K Krishnan, a former HR official in the undivided united RPG group. He is now an associate director at human resources and leadership consultancy People Business.

The division of businesses was finalised in August 2010. Three and a half years later, how have each of the brothers fared? And has the split been good for public shareholders in both companies?

Since the split, the market capitalisation of Harsh's empire increased 12% to Rs 4,478 crore. In comparison, the BSE Sensex gained 17% during the same period. The market cap of companies, led by Sanjiv, increased 13% to Rs 5,790 crore in the same period. This excludes Firstsource Solutions, a BPO firm Sanjiv acquired in October 2012. Firstsource has a market cap of Rs 1,620 crore.

Such a division of businesses among the second generation of a family is not always required, but when done well, can aid growth, experts say. "Any business family need not split to grow, but it (such a division) can be a fundamental message to stakeholders," says Kavil Ramachandran, professor at ISB. In the hindsight, the split brought sharper focus to individual companies and an early succession to each group.

Both brothers have rolled out many changes. Both have seen parts of their respective businesses do well. Both also have two concerns. First, a few individual businesses in both camps are struggling. Second, in terms of shareholder returns, companies now run by both brothers have underperformed the BSE Sensex. Harsh Goenka flagship Ceat almost doubled its sales in three years. Its net profit, after taking a beating in 2011, bounced back. The company reported Rs 5,052.21 crore revenues in fiscal ended March 2013, up from Rs 2,850 crore in 2010. Its net profit, which tanked to Rs 27.44 crore in 2011, rose to Rs 120 crore. However, although sales at KEC International doubled, profits plunged to more than half from 2010 as debt doubled.

Sanjiv, who operates out of Kolkata, boosted flagship CESC by almost doubling its sales and tripling its profits in three years. He also purchased a controlling 50% stake in Firstsource Solutions and restructured retail chain Spencer's by shutting down loss-making stores and increasing its revenue from every square feet. But Phillips Carbon slipped into the red with a Rs 22-crore loss in fiscal March-ended 2013.

The sharper focus has helped, but both brothers could have shown more enterprise, experts say. "They have been able to achieve more because of shaper focus and freedom to make speedier decisions," says Anil Sainani, executive coach of Empowering Solutions. "The aggression RPG (the father) showed is not seen in his sons," says Arun Kejriwal, founder Kejriwal Research and Investment Services. But among the two, the younger is probably a little ahead. "Sanjiv is more aggressive and Spencer's offered him an opportunity to prove his mettle independently," says Krishnan of People Business, who also teaches at IIM Indore.

But it's still earlydays as companies that both brothers run show more potential. Kejriwal says the dark horse in Harsh's stable could be Ceat as raw material prices have fallen. Among Sanjiv's businesses, Philips Carbon could bounce back; one has to wait for a few quarters before passing a verdict on Firstsource, he adds.

Source : By Baiju Kalesh, ET Bureau

How IITian Deepinder Goyal’s Zomato entered into the Rs 1,000-crore club

        

Zomato, started in Deepinder Goyal’s home, went into the Rs 1,000-crore club the day he became a dad. Here’s the story of India’s hottest start-up.

On the morning of 29 October, from about 9 am, Deepinder Goyal sat outside the labour ward in the corridors of the Max Hospital in Gurgaon, signing on dotted lines that his lawyers pointed him to.

His wife went into early labour the previous night and they had driven to the hospital. But he couldn't avoid work. His company was closing a new round of funding and as CEO and founder, his signatures couldn't be done without. So he had asked his colleagues to come to the hospital.

By 10:30 am, his undivided attention was called for inside as his wife went into labour. At 11:50 am, the 30-yearold engineer held his firstborn child — Siara, a baby girl — in his arms. At half past noon, he stepped out and turned his mobile phone back on.

Some colleagues were waiting with the final set of papers. He placed a bag on the nurse's counter for want of a table in the corridor and signed off on a major investment into his company.

The deal valued Zomato, the company he started in his bedroom four years ago, at Rs 1,006 crore ($161 million).

The founders' equity — the stake held by him, his co-founder and some employees — was now worth Rs 328 crore.

That morning, he became a father, and by the reckoning of some — particularly his investors Info Edge and Sequoia Capital — the entrepreneur best positioned to build a formidable global internet company out of India.

Zomato, if you have not used it yet, is a restaurant discovery website and mobile app. It lists information on restaurants — menus, photos, reviews curated for credibility and contact info — for 180,500 restaurants in 36 cities. It is currently in 11 countries (including India) and plans to be in 22 new countries in the next two years. The current round of funding is meant to bankroll this expansion.

It makes its money from ads restaurants place on their pages. Restaurants advertise withZomato because of better targeting. They can pay only to be displayed when someone is searching for a location — 'Colaba', for instance — and further narrow it to be displayed only for 'take outs in Colaba'.

Goyal says revenues are now hitting Rs 3 crore each month — on an average, 35% of revenue is from overseas markets. All the money comes from the website. They are yet to start monetising the popular mobile app.

Deepinder Goyal and Pankaj Chaddah started Zomato (Foodiebay, in an earlier avatar) while still working as consultants at Bain & Co in Delhi. By the latter half of 2009, the website gained some traction and user feedback was excellent.

Goyal decided to give it a good shot and quit his job the day his wife, a Mathematics PhD, got a teaching job at Delhi University. Chaddah, younger to Goyal by two years, followed a few days later.

Even though they had both attended IIT Delhi (Goyal studied math and computer science, Chaddah graduated in mechanical engineering), they had only met at Bain. Both told their parents about their decision to quit only after actually quitting — that way there was no room for being talked out of it.


Among Foodiebay's growing throng of users was Sanjeev Bikhchandani, the founder of Naukri.com. He liked the service. His company, Info Edge India Ltd, put in $1 million in seed funding early on, in August 2010. The



company funded Zomato through four subsequent rounds, cumulatively investing $25.4 million. It now owns a 50.1% stake in Zomato.

Startup valuation is nearly as controversial as the Narendra Modi versus Rahul Gandhi pitch in an election year. Unsurprisingly, there are some who think that Zomato's current valuation is completely unjustified. "It's a completely cuckoo valuation.

An investor who has entered will be looking to exit at three times the valuation in a few years. Can Zomato get a valuation of Rs 3,000 crore in a few years? And who would the buyer be? Yelp? Would Yelp or someone else pay half a billion dollars for a company that didn't even make $2 million in the latest fiscal? Perhaps, but only if the greater fool theory holds. I don't think that's likely though," said Mahesh Murthy, an investor and outspoken critic of sky-high valuations for other tech companies such as Flipkart.

But there is no sure way of valuing a startup and big bets on companies with little revenue have paid off on occasion. Zomato clocked revenue of Rs 11.5 crore for the fiscal ended March 2013, up from Rs 2 crore the previous year. According to Goyal, this year, it is expected to clock Rs 30-40 crore in sales.

If you take Rs 11.5 crore as revenue, Zomato's valuation is a multiple of nearly 100 to sales. If you take the latest monthly revenue and annualise it to assume revenue of Rs 40 crore during the current fiscal, the valuation is a multiple of 25 to sales.

"Young companies like Zomato don't get valued solely based on revenue multiples,"Mohit Bhatnagar, the Sequoia MD who handled the Zomato investment, told ET. "The product is world class and we have conviction in the founders. Deepinder is probably as good a founder as anyone anywhere in the world. It is the first Indian consumer internet company with global aspirations and that is the single-biggest excitement for us."

Goyal doesn't have to worry about the debate over valuation just now. He says a 25x valuation is par for the course for a fast-growing consumer internet company like his. At any rate, he says he can grow the revenue manifold if he can expand his sales team. "Our space utilisation is currently just 20%. We need to hire 400 sales people in India alone to exploit our ad real estate."

He recognises that growth from India will likely plateau at some point. But then there is the whole world, and then, the holy grail of the business — the US market. So far, his international foray has been encouraging.

In the UAE, where the company launched last year, it is already profitable operationally. In most other markets, there is no serious competition and the product is loved in every new market it launches in. In Indonesia, Portugal and Turkey, Zomato speaks the local language.

Zomato's moment of reckoning will come when it comes head to head with Yelp, the listing and recommendation service that is popular in the major western markets. Its IPO last year valued Yelp at $1.5 billion.

In the UK, where Yelp has been around for much longer, Zomato is now number 2. In New Zealand, where Yelp is six months old and Zomato just two, according to Goyal, Zomato gets more users than all of Yelp's categories put together (While Zomato only does restaurants, Yelp does local search and recommendations across categories).

So he is confident of his product for all markets but the US. Zomato's performance in the US will determine whether it can hit the global big league or not. Revenue potential in the US is bigger than the combined potential of all the 33 markets Zomato plans to be in, put together. Goyal says the company will spend time fine-tuning the product for a US launch.

"We will probably also need to raise more money for a US launch," he said. Goyal is soft-spoken and unassuming. But when he speaks about his business and his learnings, you get a glimpse into an unswerving focus and clarity of thought that forms the philosophical core of Zomato's growth.

A couple of years ago, the company expanded into two other verticals — ticketing for events and helping restaurants market themselves through digital and social media platforms. "We started doing everything badly.

So then we decided to shut down those businesses and just focus on the one thing users loved and do it very well," Goyal says. But he also turned necessity into a virtue. He used the staff that became redundant to expand overseas.

"It was not their fault that our strategy was poor. So, instead of letting them go for no fault of theirs, we sent them to Dubai to grow our business there." And that worked for the company, proving that the product was ready for overseas markets.

Goyal says success hasn't changed him or his co-founder significantly. "That comes with having been friends first. We can yell at each other and it won't really matter."

Source : By Sruthijith KK, ET Bureau

Making umbrellas to packaging: How Vimal Kedia made Manjushree Technopack a Rs 360 crore firm

From making umbrellas in Guwahati to packaging in Bangalore, Vimal Kedia has made more than one successful transition. Today, Manjushree Technopack is a Rs 360 crore listed company.

It wasn't the entrepreneurial zeal, but circumstances, that forced me to set up my own venture. I was barely 22, a fresh graduate from Assam University when I had to support my family because the flour mill, in which my father was a minor shareholder, suffered huge losses. The business idea virtually rained down on me. Since the north-eastern states witness heavy rainfall, I decided to tap the growing demand for umbrellas in the region.

My grandfather had gifted a 1,500 sq ft space in Guwahati to my mother and I decided to use it as a workshop to assemble umbrellas. Meanwhile, my father sold his stake in the mill and loaned a part of the proceeds, Rs 50,000, to me. Four months later, in September 1977, I launched the Rhino brand of umbrellas—after the pachyderm known for its strength and ruggedness—and registered my venture as Vimal and Company.

I hired nearly 25 people, including three office staffers and eight marketing personnel, and invested Rs 10,000 in a small stitching machine. I would purchase the raw material from Kolkata and get the stitching done at the workshop, producing nearly 300 umbrellas a day. However, since we had started operations after the monsoon, we found no buyers in the intial days. Eventually, it was location that worked in our favour.

The workshop was at Fancy Bazaar, which was the heart of the biggest cloth market in Assam, and crowd thronging the area formed my customer base. Despite this, I struggled for the first six months as I found it difficult to pay the salaries to staff and had to take an additional loan of around Rs 2 lakh from my cousins. I also applied for a business loan of Rs 4 lakh from a public-sector bank, but it came through only a year later.

My big breakthrough was orchestrated by my manager, who helped me get in touch with Sudhanshu Dutta, a small umbrella manufacturer. Dutta sourced cloth and other parts from Guwahati, but when we gave him a better offer, we landed a deal worth Rs 20,000 for material for around 1,200 umbrellas. Dutta also helped us get more deals. To attract more takers, we also offered discounts of 25-35% in off-season sales. The fact that we delivered all orders during the rainy season, irrespective of when it was placed, also helped generate business. At the end of the first year, we posted a turnover of Rs 10 lakh.

However, before the year was out, I was booked under the Essential Commodities Actbecause, as per law, a licence was needed to import umbrella cloth from outside the state. For two years, I wasted considerable time and money on lawyers and legal proceedings, an experience that drummed in the need to be aware of legal procedures.

In 1978, we set up another brand, Khamba Thoibi, to sell umbrellas in Manipur. Inspired by a local epic love story, it caught the public imagination and business was brisk. Five years later, we decided to make plastic bags, given the huge demand not only in Assam but the entire Northeast. This is because all the industries had to source them from Kolkata. I had already established strong contacts with various tea gardens through my umbrella business, so pushing another product would have been easy. So I invested Rs 15 lakh to buy plastic and bag manufacturing machines and electrical cutters, and set up an office in a 5,000 sq ft rented space in Guwahati. We registered it asManjushree Plastics after my deceased sister. By 1987, we had scaled up the operations, so we formed a private limited company and renamed it Manjushree Extrusions.

In the early 1990s, as insurgency peaked in Assam, I realised that the growth prospects were limited. So, in 1994, we decided to shift to Bangalore, but did not sell the Guwahati operations till 2002. We bought land for Rs 25 lakh, but being cash-strapped, we decided to go public. In September 1995, we listed the firm as Manjushree Extrusions Limited.
To set up a plant in Bangalore, we invested Rs 7 crore, of which Rs 5 crore was raised from the public. The plant makes pet bottles, which are supplied to cola firms. 

In 2010, the firm was renamed Manjushree Technopack. We have 800 employees, are listed on the BSE/NSE, and our turnover for 2012-13 was 360 crore. However, my biggest achievement has been the Outstanding Entrepreneur Award handed over by the President, in 1998. I also take pride in the Packaging Heritage Museum in Bangalore, which was set up in 2010 and showcases the evolution of packaging.

Source : By Amit Shanbaug, ET Bureau

With $145 billion cash, Apple could acquire Facebook, HP & Yahoo; why is Apple borrowing?

Despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades.

With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard andYahoo. Put another way, it could buy every office building and retail space in New York, according to city estimates.

Despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the US Treasury.

Apple's return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?

The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing.

Apple's maneuver, however, also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from a high last fall of more than $700 to less than $400 last month.

In an effort to assuage a growing chorus of frustrated investors, the company is issuing bonds to help fund a $100 billion payout to shareholders. Apple announced last week that it planned to distribute that amount by the end of 2015 in the form of paying increased dividends and buying back its stock.

Since that announcement, Apple shares have risen 10 per cent, closing at $442.78 on Tuesday.

Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value.

Yet even as shareholders and analysts welcome the financial tactics, they emphasize that the maker of iPhones, iPads and Macs must continue to innovate and fend off increasing competition.

"This is a substantial return of cash and it's the right thing to do on many levels," said Toni Sacconaghi, an analyst with Bernstein Research. "But, ultimately, the company has to execute. This is no substitute for that."

By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple's cash - about $102 billion - sits overseas in lower-tax jurisdictions. If it returned some of that cash to the US to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.

"They have been so successful with their tax planning that they've created a new problem," said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. "They've got so much money offshore."

The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drugmaker Roche Holding in 2009, according to Dealogic.

Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 per cent. In November,Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 per cent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 per cent, while the five-year note yielded 0.68 per cent.

"If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it's a way for them to raise money in an effort to create better returns for their shareholders," said Steven Miller, a credit analyst with Standard & Poor's Capital IQ. "The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money."

On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 per cent to a 30-year bond that yields 3.85 per cent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 per cent.

While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset.

Despite all its cash, the credit-ratings agencies have not awarded Apple their coveted triple-A rating, citing increased competition and a concern that its future product offerings could disappoint.

Moody's Investors Service gave Apple its second-highest rating, AA1, as did Standard & Poor's, rating the company AA(PLUS). (Microsoft, Exxon Mobil, Johnson & Johnson, and Automatic Data Processing have the highest credit ratings from Moody's and S&P.)

"There are inherent long-run risks for any company with high exposure to shifting consumer preferences in the rapidly evolving technology and wireless communications sectors," wrote Gerald Granovsky, a Moody's analyst.

Apple's less-than-perfect rating did not drive away investors on Tuesday. The offering generated investor demand of about $52 billion, according to Goldman Sachs and Deutsche Bank, which led the sale of the issuance.

Desperate for returns in a yield-starved world, investors like insurance companies, pension funds and foreign governments have been snapping up corporate debt. Individual investors are also driving the demand: This year, through last Wednesday, a record $55 billion has flowed into mutual funds and exchange-traded funds that invest in corporate debt with high-quality ratings, according to the fund data provider Lipper.

Steve Jobs, Apple's co-founder and former chief executive, had long resisted calls to dispense big sums to investors. In 2010, when Apple's cash stood at $50 billion, he rejected pressure to make large distributions to shareholders. The company's cash balance continued to grow after Jobs' death in 2011, as it generated billions of dollars in earnings each quarter. Over the last 12 months, Apple operations have been generating about $150 million of cash a day.

A year ago, the new chief executive, Tim Cook, announced a decision to start returning $45 billion to shareholders. But that did not satisfy everyone. David Einhorn, chief executive of the hedge fund Greenlight Capital and an Apple shareholder, pressed the company to do even more.

The excitement surrounding Apple's bond deal on Tuesday stood in stark contrast the gloom that hung over the company when it last issued debt. In 1996, Apple faced a crisis, with shrinking sales of its niche computers and a weakening balance sheet that earned a junk credit rating. In the middle of the year, its shares reached a 10-year low.

"Will Apple Computer run out of cash soon?" asked an article in The New York Times on April 7, 1996. That summer, it tapped the bond markets, raising about $600 million and averting a crisis.

Later in the year, Jobs, who had left Apple more than a decade before, returned to the company.

Source : New York Times, ET
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Billionaire Alisher Usmanov bets on Apple’s growth

Alisher Usmanov said he recently spent about $100 million buying Apple Inc shares in anticipation they will rise.

Alisher Usmanov, the Russian billionaire who made a more than 10-fold return from his investment in Facebook (FB), said he recently spent about $100 million buying Apple Inc shares in anticipation they will rise.

"I believe in the future of this company even after Steve Jobs," Usmanov, 59, said, referring to Apple's late co-founder. "When the company lost $100 billion of its market value, it was a good time to buy its shares, as the capitalisation should rebound." Apple's stock is almost 40% off its peak in September last year, partly reflecting investors' concern about slowing sales and profitability.

"For the next three years, I believe Apple is a very promising investment," Usmanov said.

Source : Bloomberg, ET

Dabur’s scion Amit Burman’s Lite Foods acquires Italian restaurant Scalini

Dabur’s scion Amit Burman’s Lite Foods acquires Italian restaurant Scalini

Amit Burman (Left) and Rohit Aggarwal at the launch of Asia 7, the restaurant at the Clarion Collection Qutab Hotel, New Delhi. (Pic: BCCL)

Dabur scion Amit Burman's Lite Bite Foods has acquired London-based Italian restaurant Scalini, a regular haunt for footballers and other celebrities . Burman plans to take Scalini , a privately held fine dining eatery located in the tony neighbourhood of Chelsea , international by opening doors in Moscow, Dubai and India over the next one year .

Lite Bite already operates restaurant chains such as Punjab Grill and Zambar in India , where the food & beverage sector is witnessing frenetic investment activity as urban middle class spends more on eating out.

Talking to TOI, Burman , vice-chairman of Dabur IndiaBSE -2.13 % and promoter of Lite Bite Foods, said , "Scalini is an iconic restaurant in London and we thought it is a kind of brand which has the potential to be taken outside of the UK. It will always play in the niche' space so we will look at Mumbai and Delhi along with exploring overseas presence ."

He did not disclose financial details of the transaction , but said the two-decade-old Scalini has "healthy revenue and profits" . Burman said it made sense to spot such properties internationally and build them as asset valuations as the domestic market had become very steep . Lite Bite Foods made overseas foray by opening Punjab Grill in Singapore two years ago .

Several rich Asian businessmen have stepped into the European F&B space of late . Dubai-based NRI tycoon Micky Jagtiani , founder of Middle Eastern retail and leisure group Landmark , snapped up niche high end restaurant chains like Carluccio's in recent years .

Lite Bite is expected to close the current financial year at a Rs 150-crore turnover , and looks to double it by next year with the help of 30 new outlets it will open at the new Mumbai International airport terminal later this year . It currently operates 65 outlets, which include franchisee formats such as Subway and Pollo Campero along with its own brands including Asia 7, Rapps , Big Gulp and Bakers Street .

"Casual dining and QSR formats are still the biggest chunk of the F&B industry as there is a limited clientele one can tap for fine dining niche restaurants . However , that is likely to change as the market matures ," said Deepesh Garg , director at Mumbai-based investment bank o3 Capital Advisors .

India's organized F&B retail market is estimated to be around Rs 5,000 crore in size and is growing at 15-20 % per annum , making it an attractive for players like Lite Bite, aventure founded in 2008 by Burman a along with Tejpavan Gandhok and Rohit Aggarwal .

Global fine-dining brands such as Hakkasan and Megu have forayed into the country along with a slew of quick service restaurants as more urban Indians experiment with different cuisines .

Source : SAMIDHA SHARMA,TNN