Started Valuing PSU banks

As promised, I have started the process of valuing the PSU banks in India. Listed below is the strategy that I am going to adopt. This time I will be sticking to the process of relative valuation.

1. I will be selecting around 8 banks based on their market cap and asset base. I wont be selecting very small banks.

How to value a company?

Valuation of a company can be done in either of the following ways:

1. Valuation using cash flows.
2. Relative Valuation.

Valuing a Bank

I have always believed that if an economy grows, the banking system has to grow. Or you can say that a prospering banking system implies a prospering economy. The housing burst in the USA, which propelled the world to a slowdown is a testimony to the importance of a prudent banking system. As far as India is concerned, we have world class banks in HDFC and ICICI along with Axis and Yes Bank, which have the potential to be right at the top. But, the major financing to the country comes from the PSU banks, which are not as structured and efficient as the private players mentioned above. As far as the PSU banks are concerned, the picture today is much better than what it was in the begining of the millennium. Reforms from RBI, such as maintaining a 10% CAR(capital adequacy ratio) and maintaining a provision for the NPA's, along with the operational efficiency demonstrated by the PSU's have paved the way for these banks to be the best in the world.

Energy Deregulation - The Irony

I was reading an article, written by a professor from Columbia University, today in economic times. I was fascinated by what I read and wanted to share it here. The professor talked about the history of the role the government has been playing in energy regulation. The most recent Bharat bandh was a testimony to the fact that freeing up energy prices is a very socio sensitive issue in India.

Kaveri Telecom

Kaveri Telecom is one company, which is my personal favourite. Unless and until something really goes wrong with the sector or the management messes things up, this counter will not find a way out of my portfolio. Like a father, in love with his child, I am in love with this stock. Probably because I have seen this stock grow since 2006, when it was a teenager in puberty. And today the company is a man ready to face the world.

More thoughts on the sweeping open offer norm

Until now to make an open offer, the acquirer had to have 15% stake in the target company. This threshold has been increased to 25%(which bestows the acquirer with the power to pass resolutions within the board). This makes sense because a company, wanting to build up a strategic position in the target company, would go to the open market.

Moreover, the time period for making the open offer has been considerable reduced to 57 days. This will help in expediting the whole process.

Is India ready for a 100% open offer norm?

Today, SEBI has laid down new guidelines tweeking the way open offers are made in India by an acquirer. Until today an acquirer, who already owned 15% of a company, could increase the stake by making a 20% open offer to the general public. This didn't provide 100% exit option to the general public. To provide the retail shareholder an equitable opportunity to exit the company, the SEBI panel is planning to make it mandatory for the acquirer to make an 100% open offer to the general public.