Wednesday, 20 May 2015

Tata Communications Ltd, NIIT Ltd and Biocon Ltd

Entered in these stocks some times back. in fact i am holding Biocon for a long time at avg of 250/- I'll post detailed study after some time. Now just posting some introduction for these to have basic idea.

Tata Communications: Entered around 400/- . It is the company which provides the data services to internet service providers, voice services to our telecom giants. Contrary to the belief our telecom and internet services are not at all wireless. In fact they are wired…our internet data travels across the globe via huge optical cable network in the seas. Same is true for telecom voice services. Wireless is only from mobile device to mobile tower.

Our telecom giants are not having installed these optical fiber cables across the globe under seas and under land in india, they buy these slots from companies like Tata communications which is having around 210000 KM optical fibre submarine network under sea and operating in around 240 countries across the world. Global submarine cable network is around 12 lac KM. Around half of this network was laid in the dotcom period of 1999-2002, thinking that world would need these for providing services like movie on demand which never materialized at that time. And because of that wholesale prices for data and voice is falling for years. Oversupply has meant prices of bandwidth saw a steep fall - in 2010 they were 20% of what they were in 2003.

But now the emergence of smartphone and huge need of data services for internet and live streaming of videos and movies, most importantly cloud computing which requires huge data capacities are now creating the need and demand for optical fiber network and driving the wholesale data prices.

But this game of fiber network is much more complex. There is excess capacity of fiber network across the globe. But the traffic moves only within the lines, it just can't break this line. For an email to go from Australia to India, it is often first routed to California, and then back across the Pacific to India. There are many cities in Asia which are only linked to each other through the US because of a lack of direct cable links. The US still acts as a major clearing house for internet communications - though that importance will decline as investments in new cable routes are made. But there's also an incentive to build more cable on routes already well served by existing systems.

a couple of years ago , a ship's anchor dragged on a cable and severed it, leaving many in West Asia with weak or no internet connectivity. Indeed, such accidental cable breaks happen quite often. A new cable, between two regions but along a different route, isn't just a luxury, but a necessity. Bandwidth wholesalers like Airtel see the ability to offer customers capacity on multiple routes between key destinations as a competitive advantage. If one route gets taken out, traffic can be switched to an alternative route.

Tata communications’ optical network carries around 10% of the global internet traffic and 19% of the voice traffic. It carries 25% share of indian data traffic.
With voice business loosing stream it is betting big on data business which is going to see huge demand in the future. It is to reap the benefits of broadband storm in india and setting up of 100 smart cities

Tata communications is now focusing on new age business which uses the synergy from its data network like streaming of media content, payment solutions through management of white and brown ATM's across the country, data center services, cloud computing with partnership with global behemoth like Google.

I feel the worst is behind the company and it is having unmatched technical capabilities in this field.
It is in the final stages for selling its stake in its African business Neotel to Vodafone for around 4000 cr, which will reduce its high debt. Need to study the full news.

NIIT Ltd: Entered in NIIT at 39. It is at 650 cr market cap. It is holding 25% of NIIT Technologies which works out at 575 cr and at 30% discount it is at 400 cr. there is around 100 cr cash in the books apart from valuable makes up about 500 cr,which leaves just 150 cr for a business having a turnover of 1200 cr, strong brand name NIIT.

I think brand of NIIT will be around 1000 cr itself. NIIT is one of the best education stock in the market apart from Zee is changing its business model to offer more productive courses like E commerce and Finance. 

NIIT is an old horse...they know the running. NIIT is moving into corporate training and more value added contemporary courses on e commerce and finance. Many times it is good to buy a stock guessing the next move of promoters like recently i did for Future retail (that they will either list their logistics arm or do some change in their business model; they did the merger with bharti). in the same way i am taking my call on the promoters of NIIT..they have the brand power, 30 years of history and experience, no they can change their course of action into something more comprehensive in education sector in the future.

Like the main reason behind the IT coaching falling down was the starting of the same in the schools and colleges, so sensing the opportunity NIIT has entered into school training, teacher training etc. I think earlier we were getting anything in the name of IT coaching, our standards were very poor...our software engineers were just doing coding (writing millions of lines of a program designed and conceptualized in some USA, we are still doing the same). This is the reason; we have not created anything like Oracle, Java, Windows. our infosys and TCS are just low cost contractors. i think it is all about education.

So i am betting my money on this quality education part.

Biocon: Biocon is one of the best research based pharma company. I am a huge fan of  its owner Kiran mazumdar shaw, who started the business with 10000/- in 1978 after banks declined to give her loan because she was a girl. i adore some indian promoters like PRS Oberoi of EIH, Vikas oberoi of Oberoi realty and kiran M shaw of biocon for their business acumen, fairness and passion. She doesn't like the idea of taking debt for acquisition. Biocon was a debt free company, only recently it took a loan, perhaps for its Malaysia plant for making insulin for catering to global market as its present capacity in india is fully utilized.

Biocon is investing around 7-8% of its biotech turnover on R&D which is equal to global MNC as compared to indian standard of just 1%. Biocon has been betting big on oral insulin and it is into 3rd phase trial...if it is a success you can sense the scale it can generate. It is also into final stages of developing the drug for cancer.

It has launched many innovative drugs with its own research. Now it is focusing big on Biosimilars which is a huge business opportunity because patents of many biologics are going to expire upto 2020. Biosimilars are generic version of biologic medicine. Generic drugs are generic version of chemical drugs.

Making of curd and making of liquor is the best examples of workings of biotechnology, when enzymes convert one material into a complete new material. Biotechnology is changing our medicine world with its innovative and side effects free biologics.

Biocon is one research arm Synegene which provides research outsourcing facilities to global clients. Biocon is going to list it in the market around jul-15, it comprises 25% of profit but its valuation last year was 4000 cr (biocon market cap is 9000), so if syngene gets a valuation of 5000 cr then we are getting Biocon at just 4000 cr. CMP around 440.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)


  1. It is holding 25% of NIIT Technologies. Could you pls explain on the same.


    1. It means that it is having around 25% shares of NIIT Technologies as an investment in its balance sheet.

  2. Hi Gurpreet , Changing the business model is welcome move and indicated by management that might take few more quarters in Q3 conf. call . Regarding the holding in NIIT tech , will that help for getting benefited in commanding more PE at some point of time or provide a cushion for downside as holding stocks with same management never get the value liquidated.
    In the last run , there were some education stocks which provide handsome returns like MT,Navneet etc.. Could you also please highlight some key points in comparison with those if possible.


    1. Dear Sir, Holding in NIIT Tech is counted solely for measuring the downside risk. Besides NIIT Tech is also a liberal dividend payer so that income is always an added bonus.

      Navneet is a good high quality stock still available at reasonable valuations. MT is into coaching which i always find very competitive, also scope for any breakthrough in business model is lesser as they generally follow the course ware or can better say provide guidance.

      Navneet is mainly into publication and stationary business. Publication some times becomes a bit of a commodity business and stationary is very competitive…but it is investing big in E-learning and pre school business which I think due to its rich experience and strong balance sheet it will taste success.

      But NIIT is in a unique territory mainly because of its rich history and understanding of the Indian IT education sector. It is having one of the biggest library of IT course ware in world besides collaborations with leading global IT Technology providers.

      I am betting my bet on the premise “Right people do right thing always”. Anyway It is still a risky bet but I am also having exposure to the safe and high quality players like Zee Learn. so due to its strong balance sheet, high dividends even in adversity , great and capable management, strong brand name…I feel it is worthy of risk.

    2. Thank u so much for detailed explanation . Investing in sipping is a better idea as most of them say and I realized the same because I have invested in uni-tech,parsvanth,gmr etc and all are 50% down from last year. However , I have started SIP in Bajaj electricals and roopa and the later one moved too fast. Tough to decide what is right :)-

      I am trying to find some water treatment companies.However wabag,chembond,ion exchange at all time highs. I feel it is tough to find such companies because they are in subsidiaries or into non core business like Triveni where sugar is major business. Rayalseema hypo is chemicals used in treating with water. Really doubt on promoters because of political background. Do u have some of these companies in mind or advise so I can try to find .

      Also eagerly waiting for your detailed analysis on above mentioned companies

      Thank you

    3. Dear Sir, Gmr, unitech and parsvnath do not fall within investment domains of neither risky but high growth nor into safe ones. These are very badly managed companies coupled with corp governance issues. These are into low demand, highly competitive business with HUGE debts.

      Don't buy these because of their 2007-08 era prices because at that time they were over hyped when the stock prices of infra companies would rise whenever they got a new order irrespective of whether that order was a profitable one or not. Just see where is Punj Lloyd now…it has always got huge order book of 15000-20000 cr but it is never into profits. Stay away from these over hyped companies.

      Same thing is happening now for online retailers or e-commerce companies. I find them too pricey…in fact we are investing big into Future retail. And it has already increased from 85 to 125 after hitting 150/-

      We advised sip only for stocks which have risen too much in recent past. Rupa and Bajaj were already near yearly lows…so downside risk was very less…so SIP was not the right approach. So we invested maximum into these…however in case of any fall…one can use the opportunity for buying more. I am buying Venky from 500 to 280…not because I am using SIP but because I am using these falls to ACQUIRE more of venky.

      In my water portfolio…I am having vatech and Forbes Gokak. I am also buying IL&FS Engg slowly from 70 to 85/- It is one of the best Infra company with best management and promoters. It is also expanding big into global arena. One more company which is worthy of water theme is Engineers india…it is under my watch since long.


    4. Thank you Dear . Its makes sense now on when to use SIP approach. Like many , I am also stepped in to market because of bull phase . But in 4-5 months , realized blunders and spent some quality time in reading books,educated blogs like this and couple of more out of a whole bunch .Even-though mistakes do happen , much better than past. Kept the earlier profile aside otherwise it haunts me every time and hopefully gets rid soon.

      Another specialty that I feel about ur analysis is identifying business which has comfortable valuations in sector leaders/larger companies and wont go for micro/small caps unless a compelling buy. But as u are aware , everywhere micros are projected as future large companies and if that is true for all companies, there wont be any investment strategy in world except equities . Anyway that ones comfortable and preference probably.

      I have some extent of such mentality when choosing stocks based on price i.e I am comfortable buying stocks if it is under Rs.600 (Tata comm. , Balmer , etc).The funny part is , after split, I may start looking at same company which I missed earlier . So need to correct the thinking.Will take a look at these water theme companies.


  3. hi sir, Other opti fiber stocks zoomed but not aksh opti fiber even the profits are increased from last year . please let me know if the promoters of aksh opti fiber are trusted persons .

  4. Hi, as you are saying about optical fiber in tata communications report. i had few of tata communications and just want to know if aksh opti fiber is good bet at current PE of 7 and also can we trust promoters .

    1. Sir, Never studied it...but after a look its Balance Sheet does not look good. On a turnover of 350 cr, debtors are 150 is always in the range of 40-50% of turnover. However trade payable is very low at 68 cr. so cash generation is too low or negative.

      Gross block is same for last 5 years around 230 cr...then why there is a constant figure of 150 cr of capital work in progress for last 5 years? It seems that for last 5 years, no capital work in progress has been turned into gross block. Seems very doubtful.

      it is not paying dividends regularly in spite of earning 90 cr in NP in last 5 year inspite of low debt. Last dividend paid was in 2014 after 2008 of .25 paisa.

      You compare it with sterlite technologies which is much bigger player. Its 2015 turnover is 3000 cr with debtors at 800 cr. It is also having high capital work in progress at 3500 cr in 2014 but it is rising gradually from 260 cr, 720 cr, 2100 cr from 2011, 2012, 2013 resp and most of all its gross block has been increased from 1100 cr in 2010 to 2500 cr in 2014, which is a clear sign that capital work in progress is getting converted into Gross block.

      So I feel you should avoid Aksh.Better invest more in Tata Communications.

    2. thank you sir for your valuable feedback.

    3. Hi Sir, Really awesome how you cross verified balance sheet with PL Account.
      Just want to calrify for the below one

      1. Stated debtors are 150cr ( is it current liabilities from balance sheet (2015) ?)
      2. For 2015 PL account i have taken the report from bseindia and in that the capital work in progess is included in fixed assets and the value states 269Cr. Where we can see exact value of capital work in progress for the report submitted to bse .

      Thanks for making me to understand the values on balancesheet.

  5. Hi Gurpreet ,

    Based on the outcome of the last week meeting for raising funds , IL&FS will be issuing preferential shares and it will dilute the equity. Could you please advise the impact of this?


    1. Sir, i'll answer this later...but if you are interested in water theme...then buy indian Hume pipe is one of the best water company in india...paying dividends for almost last 100 years...we have entered in it around 290/- i'll post the detail analysis soon.

  6. Thank you , No problem . Its nice of you for remembering my interest in water theme.

  7. Hi Sir,
    I was referring the tata communications 2014 consolidated balance sheet . The Net worth of the company is decreasing from 4,500 crs to 799 crs ( from 2010 to 2014 ) .i know i am missing something but want to clarify it . When i am leveraging , Debt/Equity is around 14 which i am assuming high. Please share your view .
    Also the gross block decreased from 24,000 crs to 15,000 crs . Please share your view when does it happens and in general is it good for a company . Thanks for your patience reply .

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  9. Hi Sir,
    As you have already gone through the Balance sheet i have few doubts on consolidated BS and how they are calculated . i see the networth of the company is just 321 crs(it decreased from 3600crs to 321 crs in last five years) out of which equity itself is 285 and the reserves are only 36crs. The debt on the books are -9331crs which is very high .the book value in just 11 . Net current assets is -7450crs

    1. Sir , Adding one more point to the above query, In their PL account, i see PBT as 373.41 and Tax paid is 370.46, why they are paying this much tax to government and also before year(2014) PBT was at 444.41 and tax paid is 343.28 . In both financial years why this company is paying high tax .
      Sir, thanks very much for indeed help

  10. Hi Gurpreet

    Need your inputs on Biocon. Most of the people are negative about the stock. Lot of mutual funds have exited the stock in the past. What is your opinion on the same? Is the management top notch? Should i remain invested?

    1. Dear Sir, i do not think indian investors understand something about R&D and to value the R&D companies. Biocon is a classic example of this. It is about to launch Biosimilars in USA, which require most sophisticated technology and much larger investments than generics. Biosimilars is a huge opportunity.

      I think it is a great buy for long term.