India's Opportunity in Africa

Tuesday, May 25, 2010 Posted by sauravtibrewal


I found this useul article in Economic Times regarding India's Opportunity in Africa.

Here is the link:

Happy Reading!!


Saurav Tibrewal

Is ICICI Bank committing a mistake in acquiring BoR?

Thursday, May 20, 2010 Posted by sauravtibrewal

There is a saying in the modern corporate world, “Lunch or be lunch”. The quotation is apt with the recent trend of mergers and acquisitions. ICICI Bank, India’s biggest private sector bank is all set to make its third acquisition this year. After taking over Sangli Bank and Bank of Madura, it has offered to acquire Bank of Rajasthan. After HDFC Bank acquired Centurion Bank of Punjab in 2007, it is the biggest M & A in Banking Industry.

ICICI Bank has offered a swap deal of 25:118. This means that Bank of Rajasthan shareholders will get 25 shares of ICICI Bank for every 118 shares of Bank of Rajasthan. The swap ratio will value BOR at about 3000 crores which is nearly 1.5 times its current market capitalization. I would have mentioned almost double, had this post been written two days back.

Now, let us do an analysis of the merger with the little information we have. Has ICICI Bank taken the right decision to acquire BOR?

For the merger

1. Increased number of branches and presence in Rajasthan

BOR has currently 463 branches, which will take the tally of ICICI Bank’s branches to nearly 2470 after merger. More than that, it will give the acquirer much needed sizeable presence in northwestern desert state of Rajasthan.

2. Encountering competition

ICICI Bank is facing stiff competition from HDFC Bank and also the resurging Axis Bank. To remain as the top private player, it needs to grow bigger and what better way to grow than the path of acquisition.

Against the merger

1. Expensive Deal

ICICI Bank has valued BOR at a whopping 3000 crores which is much more than its market capitalization. It values the acquired bank at 2.9 times the book value in comparison to 1.89 times, which is the Indian Banking average. At a time, where the picture of global financial world again seems to be shallow with Greece crisis, this expensive deal may decrease EPS of ICICI Bank.

The market gave its judgment on the day of announcement when the shares of ICICI bank were down by over 7% and BoR’s shares hit an upper circuit of 20%. The shareholders of BOR are to reap benefits as their per share value has been valued at Rs. 188.42 as compared to Rs. 80 on the end of17th May, the day previous to the day of announcement.

2. Cultural Differences

BOR, though being a private bank, has been managed like a public sector bank, where the jobs were safe and the productivity per employee was low.

ICICI Bank may probably pay them higher but again the expectations to perform will go up. Even, the average age of employees in BOR is around 40 as compared to young age group of ICICI Bank. BoR had a profit per employee of Rs Rs 2.89 lakh for the financial year up to March 31, 2009, compared to Rs 11 lakh for ICICI Bank.

The staff union at BOR is opposing the merger and has even threatened to take legal action against the promoters, if the merger goes ahead.

3. Ownership not transparent

Tayal Family had been the promoters of Bank of Rajasthan holding 28.6 percent stake in the bank. But according to a SEBI order, they, in coalition with related parties, set to hold 55% shares in the company. Tayal family has been barred by SEBI ti access capital markets and deal in securities.

The SEBI investigation is in progress and thus the possibility of a scam in the said bank cannot be ignored.

4. RBI guidelines violation

A penalty of Rs. 25 lakhs was imposed on them for violating RBI norms of illegal acquisition of immovable property, non compliance with Know Your Customer guidelines, deletion of certain records and data in Bank’s IT system.

Thus, in a nut shell, it can be said that all is not well with the bank and it was highly mismanaged. After the merger, ICICI Bank may have to bear the brunt of many such things.

5. Low operating income

Bank of Rajasthan’s profit has increased over the years. But still, it has a low EPS and net profit margin. The profit till nine months ended in a negative of Rs. 44 crores for nine months ended December 2009 against a profit of Rs. 117 crores in the year ended March 2009.

Thus, the above indicates the pros and cons of this merger but apparently it seems that the arguments against the merger are higher. We have seen certain expensive deals in the recent past which has affected the acquirer in a pretty big way. Will this merger also go down as one of the worst deals or will ICICI bank prove analysts and critiques wrong needs to be seen?

Saurav Tibrewal
MBA (IB) 2009-11 Batch
IIFT, Delhi

Logistics & Shipping Magazines, Blogs , Websites Links

Friday, May 14, 2010 Posted by nitesh

Here are few magazines , blogs and other websites and resources for logistics and shipping.
Enjoy Reading



Blogs & News Papers

Will add more as an when i get

Know the risks before taking the equity call

Thursday, May 13, 2010 Posted by sauravtibrewal

Equity investment is associated with various kinds of risks.To be successful,an investor must identify these risks and understand their implications,says Nikhil Walavalkar

TWO planes colliding into two towers half-way across the world brought down financial markets all across the world.A fortnight-long dry spell is enough for share prices of some companies to tank.Markets are meant to react to external events.Some traders make a killing by betting on such events,but a majority of retail investors emerge losers.

Equities,by their very nature,are susceptible to all kinds of risks.The reaction of the domestic market to the financial crisis in Greece is the most recent instance of how globalisation has increased linkages between Indian and overseas markets even if there is no direct connection between the economies.

Broadly,investors have to contend with two sets of risks one pertaining to the markets or systemic risk,and the other specific to the company.Here is a look at how the risks impact returns and how to handle them.


You cannot ignore market risks while building a portfolio.There are instances,where all the company specific factors are in place but the price is not right,making it a risky bet, says Chetan Parikh,director of Jeetay Investments.During a market rally,a boom phase creates a situation where an investor buys shares at a price far higher than what the company is worth.In a downturn it is the other way round where irrespective of a companys performance the price declines.Price volatility arising out of broad market movements is attributable to systematic risk.There is no one solution to this risk and diversification does not help.If you can keep your calm and pick stocks at lower levels then you are likely to face limited loss when the markets fall,as there is enough margin of safety.Some investors prefer to buy put options if they are worried about market health and have a huge portfolio.


Lending money to a dishonest person brings with it the risk that he may default.The same holds true for dishonest managements.There are instances where companies keep coming out with announcements of new projects followed by pump and dump operations.Despite the regulatory crackdown,investors lose their money as they are forced to exit at near-zero value.It makes sense to ask about those you are getting into business with.Track record of the management is a must check point.It makes sense to let go an opportunity from an unknown entity and instead invest in well-managed company with a good investor-friendly track record.


This comprises economic environment and regulatory framework.Corporate earnings grow along with the growth in the real economy.It makes sense to keep a track of the growth in real economy.But if the regulators decide to change the rules of the game,such changes could impact the fortunes of companies.Especially in highly-regulated businesses it is imperative that you keep a track of regulatory changes,as it may have its repercussions on margins and volumes.


Not all companies in a sector work in the same manner.They may have focus on certain markets,certain geographies and certain customers.A pharmaceutical company engaged in contract manufacturing will have different risk-reward than that of a researchdriven company.

To gauge the possible impact of any variable on a companys earnings,investors must have a good understanding of the business model of a company.This can be acquired by visiting company website and reading annual report of the company.If you are bullish about a sector,it makes sense to diversify your holding across business models within that sector to ensure that there is less risk involved in a concentrated portfolio.


In a rising interest scenario,a company with high level of debt faces increased risks.As the interest rates rise,the interest burden also increases,taking its toll on the bottomline and adversely impacts shareholder returns.The worst scenario happens if the existing debt of the company matures in times of credit crunch,leading to terrible situation for the company.

It makes sense to go for companies with net positive cashflows.One can also look at zero debt or nominal debt companies, says Kunj Bansal,CIO,Sanlam SMC Investment Management India.If you are keen to go for a debt ridden company,ensure that the valuations are really low to ensure that you have some margin to fall back.


Though the companies you invest are listed on Indian stock exchanges,they need not earn all their revenue in India.There are many companies that earn their revenue overseas.It is better to understand the geo-political framework of the countries.Especially in countries where democratic governments do not exist the risk is high.Recent issue of volcanic ash in European skies grounded airline shares.This underlined the risk associated with such low probabilityhigh impact black swan events.Diversification is the only way out here.It makes sense to have some meaning full diversification by investing in markets sharing low correlation with each other.


Companies earning their revenue or paying for their raw materials in foreign currency run the risk of fluctuations in foreign exchange.At a time when the global markets are turning more integrated,it is imperative to have a close look at the foreign exchange movements.A weak local currency is helpful for an exporting company,but makes the life miserable for a company that imports its raw material but cannot Risks associated with equity markets.The only solution to this problem is to identify earnings sensitivity at various level of cross currency rates and accordingly take positions,other things remaining the same.

The reward of investing in stocks depends on how well you steer clear of risks or manage the risks that you really cannot avoid.If you find it difficult,you will be better off allowing entities such as mutual funds to manage your money.

Source: Economic Times, New Delhi, 13th May 2010

Europe in a mess

Thursday, May 06, 2010 Posted by Magesh Kumar

Europe in a mess

With the size of the Greek economic quandary dilating from that of a cow to an elephant day by day, economists and others around the world are beginning to ask the same question in their minds – “will Europe hold together?”. Greece, the birthplace of the Western civilization, now is becoming more and more excruciating for the ECB, IMF and the other EU economies.

It is not a secret anymore. The fiscal deficit of Greece has touched uncontrollable levels. Hopes of recovery are fast diminishing, even among the Greeks themselves. In a near catch-22 situation, Greece has only two options to come out of this gloom – dramatically increase tax rates, or drastically truncate social expenditure, both of which will result in more tears than smiles, given that unemployment is already looming at about 10%. In fact, a line of rationale tells me it’s better for Greece to remain idle and allow itself to become insolvent, than to opt for either of the remedial measures mentioned above – a classic instance of the cure being more bitter than the pain.

Perhaps, one wonders, Greece may have been spared of this curse had it not been a member of the EU. And the logic behind it stems from fundamental macro economics – had Greece retained its own currency the “drachma” instead of switching to Euro, it may have been possible to devalue it at this juncture, so as to boost exports, which would have brought in more tax money to the Greek government. This is not possible with a common currency.

The rest of the EU is in an equally deep mess. Some are favouring a loan to save Greece from insolvency, while others, headed by Germany, strongly oppose the idea. “What is the point of giving money to a government that has failed to manage its own money?” asks Berlin, and I too endorse the same opinion. Berlin also fears that this might become a habit, as there are a number of economies lined up in queue, waiting to follow the footsteps of Greece – Spain, Portugal and Italy to name a few. (Obviously Germany has little faith in the Obama-style bailout packages).

EU’s growth rate has not been appreciable either. Foreign investments into the continent are decreasing, as Europe is becoming less and less attractive to do business. Many Europeans themselves have come to realize that the future does not belong to the white man, but to the yellow man and the brown man (yes, I’m talking about the Chinese and the Indian).

Fraught with so many reasons to frown, and none to smile, I wonder if even a FIFA world cup victory would bring a smile in the land above the Mediterranean.


ET in the classroom

Tuesday, May 04, 2010 Posted by sauravtibrewal


What is beggar thy neighbour policy

The beggar thy neighbour policy refers to a policy that aims at addressing ones own domestic problems at the expense of others trading partners in particular.

What are the instances of such a policy

The most popular forms of a beggar thy neighbour policy are in the areas of foreign trade and currency management.Conventionally,countries often impose tariff barriers and restrict imports to protect their domestic industries.However,with globalisation,such practices are not popular.But to achieve its domestic policy objective,for instance,encouraging exports,central banks devalue or encourage the depreciation of their own currencies compared to its trading partners to retain their respective competitive edge.Sometimes economies compete in encouraging appreciation of their currencies to tame inflation at the expense of hurting income in the exporting countries.

Is China adopting a beggar thy neighbour policy

Many economists,especially in the US,say China has deliberately kept the value of its currency low to forge ahead in exports.But in this case,more than the competitors,the importing country,US,is complaining because more than anything else,cheap Chinese imports are hurting its domestic economy.

How do current economies policies compare

Currently,the raging concern among most emerging market economies in Aisa is spiralling inflation on account of rising global commodity prices.Central banks in most economies,including Indias,are (though not necessarily planned) encouraging appreciation of their respective currencies.This is helping them curtail inflation arising out of imported goods as imposing tariff barriers is perceived to be against the principles of free trade.Such a practice hurts export earnings of the countries from where such imports are sourced.But the impact also depends on how crucial such exports are for each economy.

What are the limitations of such a practice

In certain cases,such a policy may prove counter productive.If,for instance,even the competing country counters one policy move,of say,depreciation (to protect exports ) then such a practice may not have desirable results,especially the countrys imports are not price elastic (the imports are essential and not dependent on prices) and instead could end up hurting the trade balance through higher import price and resulting in inflation in such economies.

Source: Economic Times, 4th May 2010