Music Broadcast Ltd: Creating Space

(I wanted to give a small introduction to Nikola Tesla due to his association with the invention of Radio but then it went out of my control and covered the distance too far. So it is better to make this one a two part series. First is about to understand the Space created by the supreme Creator and the second is about the Space that Music Broadcast Ltd needs to create for Radio in India.)

First Part: Of Space 

Information is precious….sometimes most important thing in our life. Our great Vedas were memorized by our great Rishis for thousands of years. Vedas were never written because they were not to be written. One of their biggest secret was not the syntax but the sound…pronunciation as their rhythm/vibration was meant to interact with the vibration of our DNA to activate certain energy centres essential for spiritual awakening. Vedas were memorized in order to comprehend them deeper, they should become your soul…your part; writing on clothes/leaves was not the best option to preserve the mighty Vedas so the best way was to memorize them for generations. Very strict discipline was required to memorize the Vedas.

But the Great Rishi Vedvyasa, near the end of Dwapara Yuga, realized that human beings in Kaliyuga with short life, poor brain power would be lacking the physical, moral and spiritual strength to memorize and follow the path of Vedas so in order to preserve the most vital he compiled them into four Vedas after some 4000 years of oral transmission. Vedvyasa was the 18^th incarnation of Lord Vishnu after Lord Rama and was born to Rishi Prashar. Not many know that he was the step brother of great Bheesma.

I am writing on Radio but why I am remembering Vedas here is also due to Radio. Radio was meant for information but surprisingly we are misinformed when we are taught that Radio was invented by some Marconi but it was not. Radio, in fact, was invented by one of the greatest genius ever born into Kaliyuga…Nikola Tesla. Six months after the death of Nikola Tesla in 1943, US Supreme Court ruled that all the patents for Radio actually belonged to Tesla. And when I recall Tesla…I recall his meetings with Swami Vivekananda, Quantum Physics and Vedas. Tesla was a genius much ahead of his time and was badly in need of some assurance for his crazy views about the origin and nature of matter which ultimately was provided by Swami Vivekananda. Tesla never studied Sanskrit but after his meeting with Swami Vivekananda he used Sanskrit words like Akasha and Prana everywhere. 

Tesla was a scientist in the field of electricity and he was way ahead of others at that time. He invented many of the most important inventions of our life like AC electricity, created the world’s first x-ray images, and conceived the idea of radar. But he was like a true eastern saint with no regard for material wealth. He just yearned for wisdom and knowledge. He never resorted to profiteering from his inventions unlike Edison (Tesla in his early life worked for Edison but soon they parted ways and Tesla proved his superiority many times) so he was a big obstacle for the corporate investors like JP Morgan. So he was dethroned of all of his inventions and Tesla was lost.

He was a hard-core scientist dealing with electricity which is a subatomic particle and most of the laws of classical physics do not apply on it. So he was not in conformity with others regarding the nature of matter including Einstein. Actually Tesla was the first Quantum physicist.

Quantum physics deals with the nature and behaviour of Sub-atomic particles and energy as at subatomic scale classical physics becomes useless. Classical physics describes the forces responsible for creating our everyday life like nothing can beat the speed of light and all matter is made of countless tiny particles. But when scientists looked deeper into the cosmos classical physics turned into last bencher. They found that the most basic particle Atom is not composed of something solid but of vibrating energy and breaking of speed of the light barrier was a routine in sub-atomic world. Scientists in early nineteenth century found that Subatomic particles such as electrons were able to instantaneously communicate with each other regardless of the distance separating them. It doesn't matter whether they are 10 feet or 10 billion miles apart. Somehow each particle always seems to know what the other is doing. The problem with this feat is that it violates Einstein that no communication can travel faster than the speed of light since travelling faster than the speed of light is tantamount to breaking the time barrier. In the 1920’s Nobel Prize winner Werner Heisenberg formulated his famous uncertainty principal which stated that Sub-atomic particle would change its position when it was observed. The reason; we use photon to observe (light) some phenomenon but as Photon itself is a sub-atomic particle so it will interact with the other sub-atomic particle being observed and will change its position.

But this made Einstein quite unhappy, although he agreed it worked perfectly, because it denied the reality of things when they were not being observed. So this led to famous Einstein quote “I like to think the moon is there even if I am not looking at it."

So there was utter confusion. But then Swami Vivekananda happened to the west and he introduced them to Vedas and Gita and Information was travelled to West. West was astonished to find out that wisdom of Vedas was quantum in nature. There was quantum physics everywhere in Vedas. So it is of no surprise that almost all of Nobel Prize winner Quantum scientists like Bohr, Heisenberg and Schrodinger regularly read Vedic texts. Another giant of quantum physics Robert Oppenheimer even learned Sanskrit and read the Gita in original. Heisenberg even stated, “Quantum theory will not look ridiculous to people who have read Vedanta.”

Qunatum physics in Vedas

Indian Rishis understood and experienced the quantum nature of the universe; although by following the other path…not by Analysis (Breaking into Parts) but by Synthesis (Wholeness). Indian Vedas are filled with Quantum proclamations. They are everywhere.

Like Aham Brahmasmi (अहं ब्रह्मास्मि) in Brihadaranyaka Upanishad of the Yajur Veda. This depicts the oneness and interconnection of all beings and the supreme creator. Separateness is an illusion. Our Great Rishi is not getting arrogant here but this is what he felt in deep meditations (Meditation is nothing but a state when consciousness resonates with the cosmos by raising the cell vibrations levels… Universe is nothing but a vibration). Now Quantum physics also knows this as electrons at billions of miles apart seem connected…In fact there is a growing belief that our Universe is a hologram where every part is containing the whole albeit the smaller whole. Science has so far put great effort in trying to understand the phenomenon by breaking into parts and thinking that by studying (Analyzing) parts they will comprehend the whole.

But a hologram (try Google for better understanding) is a different thing altogether as here every part contains the Whole albeit the smaller wholes. Similarly our Universe is a hologram….a consciousness…we are nothing but smaller wholes. That’s why our Rishis did Synthesis of the cosmos not Analysis. They knew that breaking wouldn't change anything.

Another Rishi announced “I am in the east and the west, I am above and below, I am this entire world.” These are from Mundaka Upanishad.

There are so many; Pragnanam Brahman – "Consciousness is Brahman" (Aitareya Upanishad Rig Veda). Ayam Atma Brahman – "This Self (Atman) is Brahman" (Mandukya Upanishad Atharva Veda).Tat Tvam Asi – "That Thou art " (Chandogya Upanishad Sama Veda).

Like Concept of time in Vedas which says that time scale is relative to the level of consciousness; different for different lokas. As per Vadas, 8.64 billion years mark a full day-and-night cycle in Brahma’s life. Just as Einstein said in his theory of Relativity that the measurement of time depends on observer’s motion and also the strength of gravitational field he is in. In Gita, Arjun looked at the past, present and future in the mouth of Lord Krishna in Vishwaroop Darshan (Ch.11 of Bhagvatgeeta).Just like the collapse of the space time coordinate system near singularities of general theory of relativity.

Quantum physics realized that no matter is solid…it is just empty space and energy. Just as vedic Rishi warns us to not to be distracted by MAYA as visible world is an illusion.

So finally some early Quantum physics scientists found a great companion in the form of Vedas. They were motivated to continue their journey further towards the unknown.

One important thing, four Vedas are called Shruti which means “that which is heard”. Vedic Rishis were not the creators of the Vedas. In fact they heard the “Vedic Gyan” in their deep meditations. They were the seers not the authors. Gita also belongs to this section…in fact it happened at earth without any medium…it is directly from the Brahaman, the Lord.

Akasha or Zero Point Energy field

Here I want to introduce something about Zero Point field or Akasha or Ether which I feel is the greatest gift to mankind by the Vedas. Nikola Tesla was the only one who understood this and dreamt of a world with limitless source of energy all free to all. His conviction got strength when Swami Vivekananda introduced him the concept of Akasha. Vedas described Akasha as the most subtle basic element from which other four elements were created. Other four element of creation are Air, Fire, water and earth. These are called Panch Bhootas in Vedas. So Akasha (Space) was never described as vacuum (absence) in Vedas…in fact they described Akasha as the basic element of which all other elements were born and hence Akasha is present in every particle of the Universe.

Thousands of years later, Vedas proved right.

All atoms are made up of protons, electrons and neutrons and we have some 100 types of atoms. So all the atoms are made of same things but they are different because of numbers of Protons, electrons. Hydrogen, Oxygen, Helium…they are all have same Protons, electrons and neutrons but these are different due to different numbers of these three. The reason Nitrogen and Oxygen are such different gases isn't that Nitrogen has 7 protons and 7 electrons and that Oxygen has 8 of each. But, it is the different amount of electromagnetic energy that that one extra proton and one extra electron in Oxygen make which changes the substance.

But still protons, electrons and neutrons are way too small at the scale of an atom…almost invisible. If an Atom is an earth then nucleus is just a football stadium. So our Atom is nothing but space. So space is the realty; space is the Atom. In other words Space is the substance of which all atoms are made. If we remove all the space from human body then the billions of these charged particles will form a heap which not even a microscope can see.

So we can say the structure of the atom is energy in a confined space between revolving charged particles. The space in this case is filled with electromagnetic energy. Atoms and Sub-atomic particles are bound together by Akasha or space that’s why atoms create substances as space acts as the binding force. Akasha is not emptiness, but it is an element which is spread over space capable of containing other elements. I even have a feeling that charged particles like protons and electrons just act as forces for creating different types of Atoms. The prime source of energy is not these charged particles but the Space.

Vedas even defined the property of Akasha which is Sound. Vedas say “Shabdaikagunamakasham” which means that Shabd (Sound) is the guna (Property) of Akasha. This is indeed very subtle. Quite contrary to the earlier popular belief Air is not the cause of Sound. Air is not the originator of Sound but Air is the carrier of sound. In a Vaccum (Famous bell-jar experiment) bell is ringed and it vibrates (Sound) but as there is no Air so listener doesn’t hear anything as there is nothing to carry the sound. But sound does originate. So Air is the carrier but not the substance of the sound. This sound property of the space is the reason that so much emphasis has been given by the Vedic Rishis on the mantras and sound pattern to awaken the Chakras in the human body.

So Tesla understood the power of Akasha and had grand plans to generate unlimited energy from space. He even built one tower for the purpose. This tower was proposed to be a model for more of these towers located around the world to provide free wireless energy to everyone. Upon J.P. Morgan finding out it was not equipped with any type of meter to monitor who was using how much of the energy it provided and was thus not for profit he ripped Tesla’s funding out from under him and the tower was torn down.

And so the Information on Akasha energy stopped there with Tesla.


Second Part: Commercial Space

Radio: Needs to focus on Information differentiation

So finally I am coming to Radio and Music Broadcast. Radio survived the onslaught of Television, Cinema and internet against all odds. Still almost 90% people in USA and UK listen to Radio, 80% listens daily. So more Americans use Radio than Facebook. Before the advent of Facebooks of the world,  Radio was the original social media platform. For majority of population in USA/UK radio is still the prime source for discovering the new music. Average listening time is 2 hours per week. So Radio is very much alive and growing fast. Radio still accounts for around 8% of total advertisement pie in western world.

But in India we have just surpassed the teething stage which was of playing filmy music all day long and creating awareness about the radio. That’s why I feel that there is no need to look at the financials of Radio players like Music Broadcast as if they can act wisely than huge growth will come. This is Quantum theory of stock market wherein we should focus on the comprehensive rather than particles :). But as now we have passed the initial stage and numbers of participants are also rising so Radio industry is now finding itself at a stage where every product in its lifetime finds itself; which is product differentiation, quality and creating a space for itself. So I feel Radio industry in India needs to move towards more product innovation; they need to be relevant for people by getting more informative. Information is not about the news or something else; it is being aware and creative in creating the content which will bring more people to the Radio. Just for a case, Green revolution in India owes its success to Radio when as part of one UNESCO project farmers took part in Radio forums. In Tamilnadu in Thanjavur paddy belt, farmers listened and learnt about a new paddy variety over Radio. It was a grand success and they even named the variety as “Transister paddy”. UNESCO applied the Radio forums all over the world seeing the success in India however AIR failed miserably after that and by 1970 all Radio Forums were defunct.

Also as per recently completed Phase 3 auction, multiple frequencies in a single city are allowed. Now Radio players can run more than one Radio station a single city so now they can focus on creating niche radio channels dedicated to something like business, regional music, education etc. Also radio players are now allowed to create network of radio stations by combining small cities and then use the same content in the network. This will work for their advantage as they can get more business with lower costs.

Here are some points due to which I feel that Radio will remain relevant and can achieve high growth in the future:

1)     Local and national advertising: India is the least advertised country. Our advertisement investments to GDP are very low. The reason is the low level of competition and logistics problems in having a nation wide footprint. But now time has changed fast in last 10-15 years. Competition is severe and brand awareness is the most important strategic decision. So we will see high growth in advertising. Local producers can’t afford television or digital advertising so Radio is the best fit for them. For national level producers Radio is another mean to reach people especially small cities/villages where mainstream TV penetration is low. So business is going to be strong for radio players. All they need is to focus on the content.

2)    Print ads are also expensive especially main page ads. But with Radio they are always on the front  page.

3)     For more effective impact of ads, we need to listen/see the ads alteast 3-4 times. For small local and  other small producers Radio is the cheapest way to do the same.

4)      People are required to be in front of television if producers want them seeing their ads. But with radio  they can reach the customer anywhere; in car, offices, colleges.

5)     Radio can reach everywhere. So while I can’t watch TV/News while driving, in the office, college but radio can reach there.

6)     Listeners feel attached to their local radio station. They feel them like their own. So loyalty is very strong here.

7)   In big metro cities like Mumbai, Bangalore driving time is the main time to listen to the Radio. Driving time is around 1 hour in big cities. Radio is the best entertainment source here.

8)    In today’s era of shrinking time, radio is the one thing that allows us to do the multi-tasking. I can work in my office while listening music, news etc.

9)   In India royalty is paid on the licensing rights for music but shared revenues are the norm in the international market.

10)  Local music is the big area of growth. Even now south market is big due to expanding regional film industry as compared to rest of India.

So Radio is not aggressive like TV but it has soft appeal. But there is one big issue which can have big positive impact on the fortunes of the radio industry and that is broadcasting of NEWS. Radio channels are currently allowed to air current affairs like sports, cultural events and weather information. But govt has not allowed them to air news citing security reasons as Govt says that they can’t keep a watch on the content being aired on radio which they are doing for television. A PIL has been filed and supreme court has asked the Govt to submit the valid reasons for not allowing private players to air the news. Govt is taking hefty annual license fees apart from initial bids but still not allowing to air the news. Also another shocking fact is that big media houses are the owners of radio channels who are already have the permission to publish or broadcast the news in Newspaper or at television. By doing so Govt is ignoring all the positive impacts that radio can bring in community development and creating awareness about local issues. Also all type of negative propaganda is already running unchecked on internet which is watched by crores of people in India. So censoring the content over radio is a big mistake as Govt is not aware of the real threats from internet terror. It is still targeting the poor people of the villages who can’t afford a TV but they can benefit and raise their participation in the growth of the country.

Govt has allowed radio channels to air the news from AIR unchanged by paying a fee which is not liked and used by any radio station.

But if this issue is solved then we’ll see much higher growth.

At present Radio advertising is at 4% of total advertising in India. Analysts are comparing it with 8% of the developed world. But things are never linearly comparable especially over civilizations. Due to limited reach of the other expensive media like TV and internet in the rural and small cities in India, Radio may acquire the bigger pie. Music broadcast is at Rs. 355 now…little higher than the issue price of 333. It is a good investment opportunity keeping in view the possible scale of operations in the future but still deserves the allocation from the risky part of your portfolio.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Results Update: Atlas Cycle and Tube Investments of India

Let me first come to Atlas Cycle which were picked at 250 in Sep-16. In no time it picked up great speed only to hit 700 few days back. Although I advised caution for the stunning run up which at times was looking stretched beyond fundamentals. Then due to corrections, it was trading around 500-520 range. But after its results on 2^nd feb, it is continuously hitting lower circuits and today touched 466. Market has taken its result negatively. Some readers have sent worried messages over the recent fall.

But let me tell you one thing its results are not bad; in fact they are very good as per my understanding. This quarter, due to demonetization, is bad for all the consumer businesses especially those dealing with rural and small towns….and this is what Atlas is. Indian Bicycle companies still earn most of their revenues from small towns. Although premium cycle demand from big cities will pave the way for strong growth but that phase has just begun. So it was natural for Atlas to get badly impacted and report lower earnings this quarter…just in line with the big brother Tube investments. Tube has reported muted numbers for its cycling business. Topline is at 298 cr vs 288 cr…a growth of 3%. But operating profits are at just 70 lakh from 8.70 cr last year. But this is perfectly on the expected lines and stock prices were reflecting this degrowth.

However Atlas managed to show good growth in the top line this quarter. Its turnover is at 147 cr vs 135 cr…almost 10% growth which is commendable during this negative period. It has brought down its interest cost from 2 cr to 1 cr. So its net loss figure before tax was at 2.54 cr vs 2 cr last year which is also quite an achievement keeping in view the big fall in the margins of Tube investments.

So its results are not bad at all and I am sure that we’ll see high growth in the next quarter. Atlas’ premium bikes are still cheaper compared to other big brands like Hero or BSA Hercules although they are at par in quality. Also there is high growth of cycling clubs all over India and craze for Cycling is growing like anything.

So there is nothing to worry as far as Atlas is concerned. Its management is good and they were paying dividends regularly till 2013 when they were profitable. During bad times, they managed to avoid unnecessary debt (their debt has fallen to 60 cr from 80 cr in 2012); they didn’t waste the money in expensive capacity creations (their assets are at 191 cr from 175 cr in 2012). Their inventory levels and debtors figures were always under control. So it is wrong to place the management of Atlas Cycles amid the likes of other shabby companies.

I never pick a stock like Atlas cycles (which are at the crossroads of their life and fighting the most significant battle for the survival and growth) for a double. My focus is to find at least a 10 bagger and there is no stoppage before that…we deserve 10 times due to the risk we are taking. But we need not to care for small oscillations in between…just focus on the goal. I picked KRBL at 18 but it oscillated between 50 and 80 a number of times…but now it is at 380. LT foods was picked at 50 but it remained going up and down in the range of 90-150 for a long time and I added another big quantity at 100…it is at 470 now. So in picking a multibagger, first thing is to absorb the initial spikes. Recent spike in the price of Atlas meant nothing to me and I was not celebrating it as it was depriving me from adding more of Atlas at lower levels which I’ll be doing now if somehow we are lucky to see it falling below 400. Anything near 350 will be a bonus.

Now let’s move to Tube. Tube Investments’ standalone numbers are not much worthy due to de-growth in cycling division and other businesses due to demonetization. Its top line has been grown to 1041 cr from 941 cr with operating profit at 44 cr from 52 cr (mainly due to cycle division). But still it managed to post PBT figure at 37 cr from 21 cr due to lower interest cost of 15 cr vs 33 cr (lower debt due to last years’ sale of general insurance business stake for around 800 cr).

Its listed NBFC arm (47% shareholding) Cholamandalam Investment & finance ltd has shown a growth of 10% in its NP at 163 cr from 148 cr which is impressive in the wake of demonetization.

But its General insurance business has recorded strong growth of 22% in GWP from 614 cr to 751 cr. Its NP is at 47 cr vs 34 cr registering a growth of 38%. These numbers could have been more impressive had it not for demonetization. So we’ll see much better numbers in the next quarter. Continue to hold and add more around 600.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Navneet Education: Education Needs Better Valuation Some Results and Updates: Sundaram Finance, Narayana H, HCG, Ak Capital services, Quick Heal, Agro Tech Foods.

Navneet Education: off late I have picked good quantity of this one. I think market has yet to fully understand its business model which has strong brand power with relatively high entry barriers. Education publication is a great business worldwide so as in India. Education publishers are much bigger than other much talked about media companies. Like Pearson, McGraw Hill or Penguin are much bigger and profitable than AOL or The New York times although Pearson is battling with slowdown in USA. 

But Indian education market is very small and dominated by huge number of small regional publishers. The Indian education publishing market is estimated at anywhere between Rs 14,000 and Rs 22,000 crore. But Navneet and S Chand are the biggest with around 500-600 cr revenues from publication and currently both or on acquisition spree to be the number one in Indian Publishing arena. S Chand is coming with IPO shortly but it has, In 2014, acquired a majority stake in Delhi-based publisher New Saraswati House. Earlier, it acquired Vikas Publishing House and Madhuban Books. In March 2016, S. Chand invested in education-technology start-up Testbook.

Navneet has recently acquired (for 90 cr) Encyclopedia Britannica’s Indian content development and publishing business. EB has revenues of around 75 cr and is developing content for CBSE affiliated schools in India serving around 5 million students. Navneet is so far a dominant player in Supplementary education books in Gujarat and Maharashtra with around 60-70% share while EB is a textbook player. As per the directives of Govt, NCERT is the content developer and publisher for almost all of the schools in India. Out of 15 Lakh schools, only 1 lakh are private with 20000 affiliated with CBSE/ICSE. So around 14.80 lakh use NCERT content. Although CBSE/ICSE are also supposed to use NCERT but the issue is debatable and these schools are using private publishers’ books upto 8^th standard. Also CBSE segment is growing very fast and I think EB acquisition will give high growth prospectus in textbook business.

Another area is Digital education and its impact in publishing business. First of all, Players like Navneet are not printing presses, they are content developers. Navneet has around 200 authors on royalty while S chand has a staggering pool of 3500 authors. So printed books are just a media; media can be digital. But even western countries have penetration level of only 20% for digital books. Students still prefer hard textbooks as they are more engaging and connect better. Digital e-books are a good supplementary  option. Pricing is another issue with E-books as they need different cost elements than paper and ink. The success of Digital Right management is not much high. The purpose of DRM is to prevent unauthorized redistribution of digital media and restrict the ways consumers can copy content they've purchased. Any hacker can break the code of DRM and that can be detrimental for the publishers. So publishers are not caring much for E-books. But still they are growing and publishers are also changing their game accordingly with almost all the publishers having their digital business for the same content. Even Apple is paying to the likes of Pearson education for their proprietary content and these books are sold by Apple to its subscribers. So I don’t see any threat from Digital books in stead they will only bring additional revenues due to more reach. Navneet has e-learning business under E-sense which is growing around 50-60% yoy.

But still, top Indian publishers Navneet and S chand are just having top lines of 500-600 cr which is very low for a big country like India. This is due to presence of so many regional publications in the entire chain. But this will change as players like Navneet and S chand may follow acquisition route for growth. So Navneet will look for more acquisitions and we’ll see high growth in the future. IPO of S chand will provide the re-rating as at present it is available at a PE of 20 but this is on the backdrop of some severe drought years where Navneet didn’t witness any growth at all. But this year it has witnessed strong growth so far. For 9 months its turnover is at 888 cr from 746 cr with Op profit at 212 cr vs 162 cr. But last 2 quarter has seen top line growth of around 50% and bottom line has grown by almost 100%.

Navneet is not a properly analyzed stock as market is giving it a valuation of a stationary company. But brand loyalty is very stronger in Education business where same books are recommended over generations. We can try different stationary brands as stationary is just a commodity but books are not. Every book is distinct and creative that's why as i have said earlier some education books are read over generations. "The Intelligent Investor" by Benjamin Graham was first published in 1949 but this is still being regarded as the best book on Value Investing. That's why i feel Content publishers especially Education content publishers should command much higher PE ratio of 30-40. It is at 133 and it was advised around 100 but it is still a good buy.

Some Results updates:

Sundaram Finance: Inspite of the impact of Demonetization, Sundaram Finance has given impressive set of numbers. Turnover is stable at 598 cr vs 590 cr. However PBT  is at 201 cr vs 147 cr…while PAT is at 138 cr vs 102 cr. So a growth of around 35% in NP…mainly due to lower interest cost at 288 cr from 324 cr which indicates that it has earned more fee based revenues this quarter although detailed report for this quarter is yet to be released by the company. However General insurance business, as expected, has given strong growth. Gross written premium this quarter is at 559 cr vs 423 cr last year; a growth of 32%. Overall this year GWP for 9 months is at 1637 cr vs 1210 cr. PAT of general insurance business is at 28 cr vs 20 cr. So we can see that this is growing at 40% and I am seeing this growing even faster in the future. The most impressive number is the NPA numbers; even after taking 90 days norms GNPA is just at 2% while NNPA is just 1% which is what I always like about the management of Sundaram.

But Tube Investments has a much bigger general insurance business with GWP of around 3500 cr with PAT figure of around 180-200 cr. So as I am saying from time to time, Tube is a stunning stock which is way undervalued at CMP of 600.

Narayana Healthcare and HCG: Narayana healthcare has grown its topline around 20% but it is the bottom line where it is putting its heart. Topline for 9 month is at 1395 cr vs 1186 cr but PAT is at 60 cr vs 16 cr. Same is the case with Healthcare Global which apart from Cancer business has a very promising fertility clinic business. For me these two are blind buys for next 2 years. As shared earlier also, healthcare will be the next IT like opportunity for India which will put India as the global hub for low cost quality healthcare. Just for putting things into Perspective, NH does the heart surgery at 1/10^th of the cost of the same in USA but still its mortality rate is almost at par with best USA hospitals. This is a great feat. NH is at 335 ( Last advised at 290) and HCG at 245 ( last advised at 190)…but these are still buys.

AK Capital Services: This was recommended at 280 in Nov-2016 to our blog readers via email ID of this blog. It is now at 415 already. Due to some reasons I couldn’t post the study on this at the blog. Actually I was planning to put Ak Capital as a demonetization pick as I think that huge bank deposits will pave the growth of Bond market in India but even I could not put my study on demonetization. We have picked Care Ltd in Aug-2016 at 1000/- on the same theme and RBI has made some policy changes to make corporates borrow more through bonds than banks.

As I have shared earlier also, Banks are not suitable for granting long term infrastructure loans for 20-25 years due to their assets liability mismatch. Most of the liabilities (Deposits) of the banks have average tenure of around 7-8 years but loans (assets) provided by banks are for 20-25 years. So Banks have a situation where they are required to refund the deposit after 7 years but they can’t demand the loan. I have always felt that Banks’ primary role should be channelization of savings from public. Then they should focus on lending these to other financial institutions and they should themselves deal mainly in retail and small business loans of small duration.

In Aug-2016, in order to slow down the bank loans to big corporates RBI has issued some guidelines for banks. RBI intends to create a special class of large borrowers called “specified borrowers”. Banks have to keep extra reserves for incremental loans made to these corporates along with making more provisions for these loans. This will raise the cost of borrowing from Banks for these corporates. This will make corporates to go for Bond markets. SEBI is also focusing on deepening the bond trading in India.  

Ak capital is the largest private sector merchant banker in India. It is having the largest chunk of bond issue market. For 2015-16 its standalone topline was 68 cr with NP at 18 cr. Its consolidated numbers were 241 cr and 41 cr respectively. But for 9 months this year, its standalone numbers are at 72 cr vs 49 cr while NP is at 18 cr vs 12 cr. But it hasn’t provided its consolidated numbers for the year so far. For last 2 quarters it is growing at around 70-80%. It is still ruling at a PE of just 5-6 and a significant re-rating can take place as management looks reasonable as nothing negative has come out so far. Most importantly they have current investment book of around 800 cr comprising mainly of Bonds. Out of this around 650 cr is Govt bonds. These are housed under its subsidiary AK cap Fin Pvt ltd whose results are not published. But this year after demonetization, Bonds prices have seen big upward movement coupled with overall low interest expectations. Interest rates will fall more in India. I am sure than AK must have sold big part of these bonds and could have gained huge. Only the time will testify this.

So I feel AK is still a buy at 400 levels. It is not comparable to Care Ltd in quality yet so it is better to put only risky money and should be a part of risky portfolio.

Quick Heal: I am advising this regularly from 220 levels. This is one company which will see huge rerating going forward. Cyber security is the next big business opportunity and even a common man using mobile for payments cannot afford to ignore security part of the game, After IPO, Quick heal has upped the brand promotion activity on television which was the only thing missing from its strategy in the past. But IPO money has been used for this purpose and we’ll see huge benefits from this. It has shown around 30% growth in june-16 quarter but stock price hasn’t gone anywhere. It is a great buy at 278.

Agro Tech foods: We were expecting a revival in its food business post marketing and distribution initiatives taken by the management. So this quarter, in spite of the demonetization, Agro tech has managed to maintain its topline at 208 cr vs 202 cr. But the surprise has come from the margins as its PBT is at 12.5 cr vs 9.5 cr…benefitted from low interest costs and margin improvements. I am seeing even better numbers coming quarters. Agro tech was advised around 525 but I made some good buying around 450 levels and the same was advised via emails also. It is now at 512 and looks ripe for a big jump.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Eros International Media: Avoid this Seducing Vamp... UFO Moviez: Have faith in the Alien

Last day one reader put a query on Eros International Media and asked me to further my views as it was recommended at this blog also (Click here).

First of all i am really sorry for not posting an update on Eros after the news breakout of its doubtful accounting practices in its International parent Eros Plc as i exited from it around 200 (My avg was 140) soon after the news after some analysis. I sold some of my shares around 425 before the news breakout ( It touched 600 after that) as i was getting doubtful due to bad state of cash flows and no dividend policy in spite of showing huge profits year after year but still i tried to keep the faith thinking it is early time. But when the news came...i got the clue and sold my shares after some time.

It is having some real lousy accounting standards...all the profit is just on the surface. Its assets base has been increased to 1300 cr in 2016 from 500 cr in 2012 but its turnover is just at 1500 cr from 940 cr. It is showing 1300 cr under capital work in progress. Now i'll tell you the real mystery....Amortization.

Mortality of its accounting Treatment of Amortization

 Let me further explain to you...it has mostly films distribution rights and movie produced by it as its assets. So when it is buying the movie rights and producing the movie…all the related costs are capitalized and after movie is released the costs are amortized over the LIFE PERIOD of Movie...and it just used this to its benefit to show higher profits yet it never paid any dividends. I always take dividend policy as the first management test. As per FASB/USA, ASC 926 requires that film costs be amortized under the individual film forecast method using the ratio of current period revenue to expected unrecognized ultimate revenue at the beginning of the year. Although Revenue streams are a subjective phenomenon but subjectivity scope is not that high with regard to the timing/period of the revenue and one has to follow the industry practices at the end of the day. So in Hollywood, as per industry practices by major studios like Disney, Dreamworks, MGM, they amortize around 50% of costs in first year of release and then up to some 90% by third year...very logical. But let me tell you, in Piracy full country like India the value of movie should be amortized even faster and Eros flops here. I even feel that for flop movies much shorter time period should be used....i am not sure about the standards of neither Hollywood nor Bollywood here. But in my view, flop films should be written down to fair market value instead of expected net realizable value. I am pasting below the amortization policy of Eros from their latest annual report (2015-16):

(d) Intangible assets and amortisation Investment in film and associated rights are recorded at their acquisition costs less accumulated amortisation and impairment losses, if any. Cost includes acquisition\and production cost, direct overhead cost, capitalized foreign currency exchange differences and capitalized interest. When ready for exploitation, advances granted to secure rights are transferred to film rights. These rights are amortised over the estimated useful lives, writing off more in year one which recognises initial income flows and then the balance over a period of up to nine years, or the remaining life of the content rights, whichever is less.

You can see that they are using 9 years to amortize dumb (Sorry! But most are) Indian Movies. So if in a year they are showing 100 cr as amortization cost the same cost as per more reliable accounting will be around 300 cr (I am leaving first year movies). You can see here that all the profit is just a melodrama…just like a Vamp seducing our Hero. Also, most of the Hollywood studios revise their expected revenues from a movie time to time in line with the economic realities. They provide a detail of all the movies in their portfolio (finished, under progress) and their expected revenue and life span. All these details are missing from the Annual report of Eros International.

When I first bought it in 2013…I didn’t do that much study…I just bought it as I want to buy something related to Indian movie business which I think will see high growth with huge demand for content post digital dawn. So it was the first choice...but i left the management part due to its name. But i was surprised due to no dividend policy and cash flows as higher and higher amount was getting blocked in Assets...i am sure most of these assets were created with related party transactions. So promoters got the dividends from related party transactions.

They have big related party transactions. Now I am coming to their international movie business. They are selling International movie rights of Hindi movies to its holding company at very low prices. Their International parent EROS Plc pays them the 30% of the cost of Movie right/Production and gets the international rights (so cheap). But Eros International gets to share just 30% of profits only after EROS PLC recovers its cost (30%) first!!! Analysts say that this is safe model for Eros Inter...but they are fooling us as we can see safety is with EROS PLC. Like for a 100 cr movie, Eros International spends 70 cr and EROS PLC 30 cr. So if EROS PLC earns 70 cr from global markets then Eros International will get 30% of 40 cr ( 70-30) i.e 12 cr as its share of revenues. However global market is a huge growing market for Indian movies...and selling movies this cheap (Eros Plc has revenues of around 2000 cr; higher than indian arm!!!) just shows the cheapness of Promoters to grow at the cost of shareholders.

So don’t book any ticket here. There is no merit in taking chances with doubtful promoters. So if you are already having it then just sell it and buy UFO Moviez.

UFO Moviez (CMP 455): UFO Moviez was recommended around 550 at this blog (Click here). I have used the recent fall to 400/- to buy major quantity. Results for this quarter can be bad due to demonetization…although I feel at 455/- the negative is already prized.

Apart from Digital cinema distributorship and exhibition business; it is venturing into new territories to be more relevant and diverse.

Caravan Talkies: It has carved out “Caravan Talkies” to provide movie screening in the media dark hinterlands of India free of cost through Vans. The revenues are earned through advertisements. Just imagine the scale of advertisement revenues from captive audiences. Rural India is always a challenge for advertisers due to lower penetration of digital TV and radio. UFO can use its huge client list of around 2500 advertisers (up from 500 in 2013) to use Caravan Talkies for their advertisements in rural India. Rural India is the next big consumption story which nobody can afford to lose.

Nova Cinema: It has just launched its new business under Nova cinemas which is a franchisee based digitized single screens cinemas targeted at small cities...a natural expansion from its movie distribution business. Under this initiative, UFO will provide support in converting the analogues single screens in small cities into top class digital theatre equipped with best in class technology from UFO. But costs related to setting up of theatre and day to day expenditure will be borne by the owner. Multiplexes with huge overheads and big capacities can't survive in small cities. Small digital cinemas with one or two screens are the way to go. UFO is early into the game. Opened one in Moga, Punjab. Distributors don’t feel comfortable in licensing the newly launched movies to these small analogues screens due to piracy issues. But the UFO brand and top class provides the high level of credibility. Advertisers can monitor the use of advertising from their consoles.

 India has just one screen per 1 lakh residents, while USA has 1 for 7800 and China has one for 40000. So movies (made at hefty costs) do not reach the maximum possible scale resulting in revenue loss to all the stakeholders including Government. Moreover number of Indians in big cities watching movies are falling consistently; from 8.2 cr to 7.8 cr. This, I feel, is due to other entertainment options available with urban customers. I also feel that high food/beverage costs in multiplexes are a big deterrent…and watching movie with empty stomach significantly reduce the experience. This has resulted into low occupancy levels of just 30% in Indian Multiplexes!! So multiplexes need to grow these numbers before they invest further in small cities. Multiplexes (90%) are opened in Malls due to costly real estate in cities. Multiplexes has high technology costs as compared to in-house technology of UFO limiting their capacity to offer lower ticket prices without food and beverages as in small cities F&B revenues are very low. With all these high overheads, multiplexes gain in metros due to showing of a number of films at same time with common fixed overheads leading to better margins. Indian movie industry is regional as in place of one language movies are made in around 15-20 language leading to very high marketing and distribution costs and so lower profits. So addition of more cinemas into the engine is the best preferred mode of action and Nova will do just that. 

Also, at present Movies pay both the taxes; service tax and high entertainment tax. So our top class public servants with high level of intellect need to use high end of their brains to understand either something is a service (due to necessity) or a frivolous/luxury activity. But I can understand their mental block as they have been shown Cane crushing machine as brand image of taxation departments in their training days, so they see common man as cane. I hope GST will change this and technology enablers like UFO will see an increase in their margins as they’ll be able to claim input for CST/VAT paid on equipment purchase which under current regime is not available to them (Will explain Input and GST to non financial background people in some other post). I haven’t made a calculation for this but this should be good.

So Nova cinema can be a great addition to the UFO portfolio.

It also has other initiatives, Club cinema and UFO framez. Club cinema deals in screening of newly launched movies to premium clients in their place/Home theatre/Clubs. This can be a good vertical catering to niche portion of population. UFO framez is a hyper local advertising platform enabling local small city businessmen to use UFO platform to advertise on UFO enabled digital cinemas. This is just in the starting phase…so will explain these better in some other time.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

BSE IPO: Avoid counting Fruits as Seed is becoming a Tree

BSE has become the world’s fastest Stock Exchange with an order response time of 6 microseconds and the largest exchange in the world in terms of number of companies listed. It is the first Asian Stock exchange dating back to 1875. These are the things which shouldn’t be ignored especially when we are talking about an Indian Stock Exchange as we Indians just invest around 3-4% of our financial savings in equities as compared to 15% in China and 40% in USA. Most other developed/developing countries have ratios in the range of 10-15%. We never realized the potential of equity markets. I remember one fine day when I visited one of my friend and one Insurance adviser was trying to sell him a very high valued Insurance policy. My friend introduced me as a share market investor. But the adviser assured my friend that Stock markets were risky but their Debt bond based Insurance policies were safe. I simply asked him that the Bonds his insurance company were investing were issued by large listed companies and if they couldn’t make profits and couldn’t grow then who would pay us the high interest rates on bonds and bank FD’s. Banks can pay us high interest rates on Fixed deposits as they are earning higher from borrowers who are investing for economic growth.

Nothing is safe here. Even Bank FD’s (including Interest) are only secured up to 100000/- per bank. So if a Bank goes down, you’ll only get 1 lakh rupee for all of your FD’s. In fact few years back, it has happened in reality.  The Cyprus Govt decided to use the bank deposits of people in the banks above Euro 100000 to pay off its debts as bank deposits only up to Euro 100000 were insured.
So we are misguided regarding safety. We don’t know that Insurance is never about investment but it is for safety…so instead of buying term Insurance we go for low valued endowment plans. We go for FD’s for returns while they are just for safety; to beat the inflation rate to keep the purchasing power of our money secure. We aren’t earning anything from FD’s…it is not capital formation. We are illiterate when it is about investing and returns.

So I see things changing big time in India. Real estate prices are saturated, one can’t earn now by investing in Real estate. Gold is losing its shine also….although as I shared in my earlier post on Gold (Click here) that Gold is also for safety. So we can see high activity in Equity investments in the future. Earlier we used to invest just 1% in equities which has been grown to 3% now in recent times. So we are growing.

But most of the market is not positive about BSE IPO due to low equity trading share of around 15% as compared to Big brother NSE. Nothing share in equity derivatives. But still I see value in this due to high growth in equity markets and it’ll have its share anyhow. But I think BSE is doing some things right now and is focusing big on some emerging trends. It is investing big in Equity derivatives, commodity Exchange and Bond exchange.

I have talked enough about need to grow commodity trading in India (Click here). MCX is an emerging giant and I am heavily invested in this. World over, Commodity trading is way bigger than equity trading. Just for a perspective; U.S. daily commodity turnover, it is about Rs. 1,64,40,000 cr while daily turnover of equity market is 25,00,000 cr. i.e. commodity turnover is about 6 times the equity turnover. Now if we take chinese equity market daily turnover it is about Rs. 8,00,000 cr while that of commodity exchange is of Rs. 16,50,000 cr which is near about 2 times its equity turnover. Now if you take India where daily equity market ranges from 300,000 cr to 4,00,000 cr while that of commodity market daily turnover is about 25,000 to 30,000 cr which is 1/10th of equities. So we’ll see high growth in commodity exchange as SEBI is very serious about this. Our metal giants like Hindalco and HZL do not hedge their exposure at Indian Commodity exchanges but at Global due to low liquidity in India. 

Just look at the daily Equity turnover of India at Rs. 3 lac cr with China at 8 Lakh cr!! USA is like a Sun at 25 Lakh cr. And people are comparing the market share of both NSE and BSE!! This figure of 3 lakh crore is also superficial as FII's are still the major players of Indian market. They are responsible for around 60-70% of the market (if i am right). They are holding around 40% of free float, retail investors in India hold just 33% which is very low as compared to global markets. Domestic institutional players like MF hold 20%. So Indian markets are heavily impacted by the choice of FII's. Indian retail investors aren't well researched when it comes to investing; they invest when markets are at top (due to short term focus) and then they leave when market falls (due to fear and short term focus).

But India has huge capital requirements (Trillion Dollars) to finance its infrastructure. But here people are wasting their money in unproductive real estate and Gold investments. This is going to stop eventually due to falling returns in real estate/Gold. This money will come to equity market.  We need to see the vast sky. BSE and NSE won't compete with each other for market share but they will share the incremental growth. It is not like Indian telecom market which is mature and everybody is fighting for market share...eating the share of others...just like JIO. It is just like the initial Indian telecom market a decade back which had enough for everybody.

Same is the case for Currency Derivatives where RBI and SEBI are trying to grow the liquidity and lowering the speculation opportunities due to timing issues. They are going for extending trading time in synch with global exchanges. BSE is already a big player in Currency derivatives. It is having around 37% share. Actually Commodity and currency trading is highly inter connected as commodity players are also required to hedge their currency exposure also. So with the growth of Commodity trading currency trading will also see higher growth.

Next big thing will be the growth of Bond market in India. As shared in the post related to CARE Ltd (Click here). Indian Bond market will see high growth from now on. Even RBI has put the limits on banks in giving loan to big corporates. So Big corporates are going for Bonds now. We picked AK Capital services, which is a big bond player in India, at 280 and it has already run up to 440 today. Bond issuance has been increased from Rs. 174781 cr in 2008-09 to 413879 cr in 2014-15. This year figures could be way higher. RBI and SEBI are trying to get more people invest in Bonds along with Govt bonds in order to have more liquidity and to have more diverse holding to address the price volatility issues. BSE has a fairly developed Bond trading platform and Bond trading can be a big surprise factor. I am betting on the growth of bond trading big time.

So market may have its own views about the growth prospectus of BSE but I am seeing high growth in its business fortunes. It is also available at cheap valuations of below 20 which provide the margin of safety. So just sense the growth opportunities and exchange your money with it. No need for doing a comparison and an evaluation as seed is just becoming a tree. Avoid counting Fruits. I am going for it and will be holding for long term.

(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. I am not a certified Sebi Analyst and applied for the IPO of the share discussed in this Post)

General Insurance sector-2nd Part: Nothing General about it. Stocks Covered: Tube Investments of India, Sundaram Finance, Bajaj Finserv, Max India, Future Enterprises

In my earlier post about general insurance (Click here), I mentioned about the rerating prospectus of general insurance companies once the IPO’s of these would come. SEBI was also pressing General Insurance companies for IPO. So today Govt has approved plans for divesting 25% in 5 public sector General insurance companies. This is as per my expectation and will surely make our Stock market better understand the valuation of General Insurance companies. General insurance sector is way underpenetrated in India with around 28 players fighting for small scale of business available. Everybody is fighting with low prices to lure customers making us think that General insurance is useless low cost phenomenon mostly forced upon us. However it is ,in fact, a specialized service which can save us from unforeseeable costly accidents. So quality of service is very important. But as most of the players are busy in the price war so nowhere focus is on to improve the customer experience and service quality. They need to make themselves more relevant so that more people understand the value of insurance. But I find it hard to understand what growth they can achieve with low prices and with even low quality services.

WHY IPO IS RELEVANT

IPO is all about getting the most for your equity stake. For this, we need better business model with quality balance sheet. But at present, PSU General insurance companies have dismal balance sheets and operating model. Four public-sector giants had massive underwriting losses for the half year — New India's underwriting loss was Rs 1,803 crore, followed by United at Rs 1,533 crore, Oriental at Rs 1,465 crore and National at Rs 991 crore.

But Insurance business is very different from other businesses where incremental revenue brings more profits. But in Insurance, in quest for growth, one can underwrite riskier insurance case which can destruct even the profitability of 10-20 earlier cases. So growth is never a blind game for Insurance sector.

IPO will make these General insurers to put profits into perspective and to focus on repairing their dismal balance sheets. So I see an end to price war and more focus on profits with high levels of service with more innovative plans.

Second; as explained in my previous post that in spite of making underwriting losses General Insurance companies are still profitable due to Investment income. Insurance companies receive premiums and pay the claims against premiums received. But there is a time Gap between these two events…they are not paying claims immediately…there is always a time gap between premium period and claim period during which Insurance companies can use this float to earn investment income from the premium amount. Float is the money that doesn’t belong to Insurance companies but which they temporarily hold. So Insurance companies invest this float money into so many investment options like Bonds etc. and earn investment income. Indian general Insurance companies are profitable only due to this investment income.

But this investment income will fall due to falling interest rates. Interest rates are falling due to low inflation (RBI cutting Repo rates) but the rates will fall even more due to high bank deposits courtesy Demonetization. So this falling investment income will put more pressure on General Insurers to focus on profits at underwriting levels. Although I think they will post high profits this quarter due to rise in Bond prices (Bonds they are holding in their portfolio) pursuant to fall in interest rates (Bond prices are inverse to Interest rates).

I have mentioned many times that Banks, in their quest for growth, aren’t constrained by deposits or reserves (as is commonly thought) but by Capital. Banks are always short of capital. They need to maintain minimum Capital adequacy ratio; a capital base adequate to absorb any unpredictable losses in the future. The current NPA issues of our PSU Banks have the potential to destroy any chance of future growth as in the absence of adequate capital they can’t offer more credit.

SOLVENCY RATIO: Fat is good

In the same way, Insurance companies are also constrained by capital. The adequacy in case of General Insurance companies is a function of Solvency ratio. Insurance is a very risky business (riskier than banks) where one calamity like Chennai floods or an earthquake can create havoc on their business. So these companies need to have enough capital to absorb any such shocks on our behalf….which is their business. We are paying them only for this. It is not like equity money invested into current retail startups like Flipkart (Startup!!) which can burn this cheaply for acquiring more customers. Insurance is big responsibility…requiring careful business mind. They are supposed to get fatty in order to bear the pain during starvation. But our General insurance companies at present are devoid of any such fat…they are way too lean.

PSU General Insurance giant National Insurance’s solvency ratio (1.2) is well below the mandatory ratio as prescribed by IRDA (1.5). Oriental Insurance has solvency ratio of 1.14….and they are planning for IPO?? What special valuation will Govt get from these general balance sheets?

Solvency Ratio is a measure of total assets of an Insurance company relative to its total liabilities. As per current IRDA rules, assets must be 150% of total liabilities. The process involves valuation of the assets and determination of the liabilities. The value is assigned to assets as per the provisions laid down in IRDA Rules. For instance, advances of unrealizable character, deferred expenses, preliminary expenses in the formation of the company, etc are to be assigned zero value. Assets also include the insurance company’s investment in approved securities, non-man-dated investments; etc. The determination of liabilities is more complicated. IRDA Rules have prescribed a detailed method for the determination of liability by both life insurance as well as general insurance companies. I’ll try to post another study on this when time permits.

We live in a dangerous world now. Our capacity to create destruction has only grown multifold. Events such as the terrorist attack on the World Trade Centre in New York can create unexpected liabilities of a magnitude difficult to anticipate and cover. A giant earthquake and terrorist attack can impose unbearable burden on the Insurer and it can go insolvent. That’s why Solvency ratio is very important.

In my post related to GDP (Click here), I have mentioned that being resilient is one of the factors of growth. Solvency ratio is just that…it demonstrates the resilience of an Insurance company. It needs to have extra cushion. Imagine a situation when a Life Insurance company with inadequate solvency ratio is required to pay for claims due to some big natural calamity and in the process it goes insolvent…we’ll lose all our money…our investment.

Insurance is not about Cheap and Low Cost Products

That’s why I feel that Insurance is a specialized service requiring high business acumen. I always tell that cheap policy or High promised returns are not the prime metrics in choosing an Insurance company. We are misled here as Solvency ratio is the biggest relevant figure to look out while choosing an insurer. Higher the ratio higher the chance that you insurer can meet any calamity. And calamities are inevitable…once in a while they are coming always. So Insurance companies can’t relax in wasting money in acquiring cheap customers by offering low priced insurance policies. Just for putting things into perspective, among Life Insurers Bajaj Allianz was having Solvency ratio of around 7 and also it was the only company in General Insurance earning underwriting profits (Bajaj Finserv is the holding company, I always like Bajaj for their great Business insights).

So these General Insurers can’t think of getting high valuations with low valued balance sheets and business models. PSU General Insurers can’t always look towards Govt for their capital needs; they need to have self-sufficient model. Sometimes I think that this reckless behavior from PSU business houses like Banks and Airliners should have been penalized by competition watch dog. These PSU’s do bad business…bad management…terrible choice of customers (Mallaya/Jaypee)….they compete on cheaper prices. But when they are into losses due to their terrible business models, they beg to Govt for capital which our Govt does with public money. This is pure looting and should be stopped.

So I think good time for General Insurance industry will come shortly. We may witness some consolidation. We’ll see players with more specialized set of services. Like Max Bupa is catering to Health Insurance and due to synergy of Max hospital can become a force in health insurance.

Some time back I have shared about the potential of Internet of things (IOT) in business. IOT can provide big benefits to General Insurance sector. Sensors in Cars can detect the driving pattern of a person and on the basis of the same premiums will be charged (High premiums for bad driving, Salman khan!!). Health Insurance companies can use wearable devices to monitor the health of its customers and can take advance decisions/steps in case of emergency and thus reducing its costs. But these things will become a reality when they have profits to back up these specialized set of services. That’s why I feel quality of services and innovative products are the key.

General insurance penetration is extremely low in India...around 30% for 2 wheeler, 40% for commercial 4 wheeler (private is good at 70%), health insurance is just at 20%. Crop insurance is the new high growth segment.

So as explained in earlier post also, General Insurance stocks like Tube Investments of India (CMP 570), Sundaram Finance (CMP 1230) , Bajaj Finserv (CMP 3011), Max India (CMP 140) are a great fit for investing. Even Future enterprises, CMP 18.30 (Holding 30% share in Future Generali Life Insurance and 50% in Future Genereli General Insurance) can be worthy...and this can surprise as it is focusing big on health insurance. Its Gross written premium was 1600 cr in 2016. I am never a follower of Reliance (Reliance Capital) and Religare…so I am leaving these from my study....because we are looking for Special companies in General.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Happy New Year 2017: Let's Make More Time This Time

….and another year is passed. I constantly hear people pointing out the incredible speed at which time is running away from them. Years look like months. One hour phone call to my love life (of course before marriage) now appears bigger than 5 years of married life. Time appears to be moving slow in young age and quite fast as we age. Well, there are some strange theories which say that this perception of time (moving fast or slow) has its roots linked with the ratio of time interval to the total life span we have been alive. Like for a 10 year old young boy, one year is a long period of time since one year is 10% of his total life so far. But for a 50 year old this one year is just 2% of his total life. So no doubt we can see here that 10% is more than 2%.

But I have always felt that somehow this time perception is related to level of my consciousness. How conscious or we can better say “aware” I am?  And we are aware only when we are doing something novel, when we are in some adventure, when the moment is a quest for life and death….and time is slow. We can see that as we age our routine becomes repetitive, there is nothing new in it….we just get up (or gather ourselves) from the bed, breakfast, routine job, some flirt/gossip, back home and sleep. There is nothing novel in it….nothing new to challenge our mind. In fact our mind can do these things for us in sleep also. Our Mind can only Re-act….it can’t act…it filters through the stored memories and then suggests the route of action. Act is the responsibility of Consciousness or Soul….when we challenge the order of our life to experience something new. Remember our first love proposal…of which we had no experience, job interview, a warrior fighting for life and death….and these moments are eternal.

So the more we learn new things, new adventures, challenge our notions and principles…more alive we are for we are not an entity but a flow. We are not here to pass time, to please some God…but we are here to experience ourselves…and through this experience we absorb this mysterious phenomenon called life…we move forward towards our quest to know what we are.

So let’s plan something new for ourselves this year…learn something new…anything that we are yearning for long…anything that makes us more alive….music…martial arts…language….stock market. This is the path of a warrior…to explore life…to live more and follow less.

MY BEST WISHES FOR A GREAT LIFE FROM THIS YEAR…HAPPY NEW YEAR.