Facebook's new initiative to connect people

I think this is really great move that could help Facebook to achieve adding many more millions of people in its network in coming years.

Facebook is the latest entrant into the line of companies that are trying to improve the internet access facility to the people in the developing countries. The New York Times reported that on Wednesday Facebook is expected to announce an initiative that cuts the cost of accessing basic internet services in the developing countries. The intention was to make the mobile users to access internet on their handheld devices at lower cost. The mission is partnered with other tech companies like Samsung, Nokia, Ericsson and Qualcomm.These partner companies would work on optimizing the speed of the chips on mobile handsets so that dealing with more data would be lot easier with lesser power consumption.

Probably this could be viewed as a great step by the company towards its mission of adding another billion users within next few years. It is estimated that around 4 billion people in the world have no access to the internet but almost all of them have a mobile phone.

Other tech giants like Google and Twitter have also been trying to offer a free access to their services via mobile and cheaper internet access. All these steps by these companies reveal one thing clearly - future of these tech giants lies in developing countries!

Sensex on a free fall, but do we need to worry?

Every investor looks grim now as the Sensex started its free fall on Friday. Sensex was down by almost 280 points when writing this article on Monday too. It has lost 1000 points in two days, all out of the panic from foreign investors about India's state of economy. The rupee also touched its all-time low reaching just under 62. There are various factors that could be said as reasons for this fear among investors including slower growth, inflation, corruption, falling rupee, widening current account deficit, etc.

So the investors are looking for safe havens like gold or the developed economies (e.g US) to better put their money rather in a slow growth, muddled state of economy.

Sectors like mining and manufacturing are also not gaining much from the depreciating currency as they are not performing well. It could have been a little relief for the whole economic scenario here if these sectors are doing better. Also, as India imports oil and computers in dollar dominated trade, the prices of these goods went up around 40% in last couple of years, in turn, pushing the prices essential goods across the board, ending up in higher inflation.

Raising interest rates by the RBI also didn't help much in containing the free fall of the rupee as it is considered as a 'late move'.

Meeting the current account deficit (exports-imports in negative) is also seems to be a humongous task in front of the government now, coupled with the slow growth in the range of 5%. Waning investors' confidence and falling currency should certainly be the top priority for the government to think about now. Experts think that it would be tough to contain if this situation falls into a vicious cycle.

Hope our economy will be back with a bang soon and our best wishes will always be there!

Falling Rupee and You

This must be a time to be frenzy about many travel plans that you may have in your calendar especially if it's for abroad! Yes, the free fall that our currency is facing is a real concern for almost all types of people in the country. Today it crossed the magical mark of 61 (experts believed that rupee would not cross this mark) and expected to do further sliding in coming weeks. So what should we think about and what it means to us? Here are some thing that may be of worth reading.

1. Be ready to shell out more for fuel - since India imports a lot of oil, depreciating rupee would have its own effect on the prices that we pay for fuels like gas, diesel and petrol. Expect more hikes in this area in coming months.

2. Think twice about your foreign trips - Travel agencies are already witnessing weak demand for foreign tour packages as you may need to spend more to buy dollars. Consequently, domestic tourism is expected to pick up in coming months. So any plans for abroad tourism? You are recommended to be patient till rupee recovers to a comfort level. Same theory could be applicable to foreign education as well. Students who have plans for this year academic courses in abroad may feel the pinch.

3. Your wallet may cry as you may spend more on FMCG and consumer durables - Your soaps, shampoos, deodorants and detergents may get dearer in coming weeks as manufacturers of these products may wish to pass on the input costs burden to consumers. Note that crude oil is one of the major ingredients for these products. Electronic gadgets like laptops, TVs, mobile phone and ACs may also become more costlier as importing raw materials for these products would be more expensive for the manufacturers in India.

We may expect some remedy if the government takes some appropriate measures here and this would be a challenging situation for the government as the country faces general elections next year.

E-commerce in India - What's ahead?

There's a hype in recent months that eCommerce in India is getting punched and can be brought down by the mounting pressure on the eCommerce companies as they struggle to survive. Heat is on these companies as they couldn't turn profitable since they shed lots of money as operating expenses. Venture Capital firms prefer to stay away from investing in any new start-ups in this sector.

Except a handful of companies like Flipkart and Myntra, others are feeling the heat. Even these successful companies are yet to be 'profitable' even after they were successful in raising funds.

One emerging trend we could see in recent months is that eCommerce industry is in a 'consolidation' phase now. Few examples include: Babyoye.com, a baby e-store merged with Hoopos.com, another baby products seller and Buytheprice.com was bought by Tradus.com. So the question is where the market will go?

Experts think that the industry may consolidate further and get stable as more smaller and new companies would be thrown out or sucked in. But considering the internet usage by 2015, the eCommerce market in India still looks promising (it is estimated that more than 300 million people will use the internet by 2015, up from 100 million now).

The eCommerce market may be still has a long way to go in India as people are still have constraints like lower speed internet connections, fear of using credit cards online (e.g identity theft), 3G internet on mobile devices has long way to go as more and more people are still using non-smartphones, lack of efficient payment platforms (gateways), etc. The whole point here is that the younger population may be interested in doing online transactions more than the middle and aged population. This may be due to the cultural shift that's happening now. Hence we could expect that the future has lots of potential for eCommerce market in India and it may take another 5-10 years to see the real value of 'eCommerce' in India.

What's happening with the Gold market?

There has been frenzy about the recent price drop of Gold in recent days and all of us wondering what's happening with the commodity and even thinking of putting some investment in the precious metal only for the reason that the price is down by record levels in a year.

I just tried to get to the bottom of the picture only to see what's gone wrong with the yellow metal. From an economist's view one can easily conclude that the demand might have come down triggering the price levels to fall. But is it the reality at the ground? Though an initial high level notion shows that the demand from institutional buyers have declined pushing the prices to lower levels in turn, there are are other global factors that really have had a considerable contribution for this decrease in prices. (see the picture below)

When the article is being written, we could see the Gold prices to recover slightly (was at $1370/ounce), up by around 1%.

The largest consumer of Gold, India, is expected to help the yellow metal's prices to back on track in coming weeks as Akshaya Tritiya is around the corner and wedding season is expected to last till June/July. This would probably boost the consumer demand for the commodity in coming months.

So this could be the right time if you want to make some investments in this high valued commodity!

Would you like to invest in Facebook?

This is high time as the most expected IPO in internet businesses history is making its way, yes, Facebook has begun its roadshow for investors towards its IPO on Monday. It seems many Indian investors also might be putting their money in Facebook.

For around 1,000 shares, one may need around Rs.18 lakhs (at a price of $35/share). Facebook's IPO offers around 337 million shares with a price band of $28-35 per share, raising around $14 billion. This puts the valuation of the company at $95 billion.

Facebook will start trading on May 18 on NASDAQ under the ticker, FB.

Facebook claims that it has more than 900 million active monthly users.

Facebook's growth slows down

Ahead of its proposed IPO in May/June this year, Facebook has come up with financial results for the Q1 2012. The results are bit disappointing for investors and potential investors who are thinking of a pie in IPO shares. Revenues crossed the magical $1 billion mark in last quarter, a healthy 55% growth Y-o-Y. But when you look at the bottomline, it was a bit concerning. Net profit for the quarter came down by 12% Y-o-Y, primarily driven by the expense factor. Marketing expenses have nearly tripled.

Facebook might be struggling to keep its revenue and user growth and spending a lot in marketing and ads. The company even cited in its recent filing that it may not sustain the growth level in coming months.

Here's the latest filing: http://sec.gov/Archives/edgar/data/1326801/000119312512175673/d287954ds1a.htm

A look at Facebook IPO

And yes, it's finally came! That's the reaction from the world of investors, analysts and others who have interests in Facebook. Facebook has filed for IPO yesterday with expecting to raise $5 billion from the public. However the company remained silent on the number of shares that are floated for IPO. Also, no break-up of users by country is available in the filing.

The numbers seem really promising and as expected. Revenues were $3.7 billion in 2011, an increase of 88% from previous year. Profits stood at $1 billion (~27% profit margin). Number of Facebook users jumped to 845 million at the end of 2011, up by 39% Y-o-Y.

Industry estimates put the valuation to be in the range of $75-100 billion.  Well, these are all on the positive side of Facebook. Let's have a look at some other numbers as well that may be really worth considering for investors and followers of Facebook.

    1. Sales growth has been on decline since 2009 (sales growth in 2009 was 186% over 2008, but it was 88% in 2011 over 2010)
    2. Total expenses have been steadily increasing since 2008 and it was up by 100% Y-o-Y in 2011
    3. Net income was increased by 65% in 2011 and was at $1 billion (don't know whether Mark wanted it as a rounded/exact figure!)
    4. Cash and cash equivalents were at around $4 billion at the end of 2011
    5. Number of monthly users were around 845 million as on Dec 31, 2011, increased by 39% Y-o-Y; the same number witnessed an increase of 69% in 2010; this shows that Facebook is nearing maturity in terms of adding people; this may not be an issue if it considers other unexplored markets like China;
    6. Daily active users were around 483 million in 2011
    7. Advertising is still the major source of income for Facebook with around 85% of its total revenues come from that segment, but note that it was 95% in the previous year
    8. Revenues from the US market has been on decline. Around 56% of its total revenues were from the US in 2011, it was 62% in 2010.
    9. Every Facebook member generates ~ $4.5 in sales for Facebook and adds ~$1.2 in profit to the company
  10. Expected offer price will be in the range of $40-53 per share
  11. Around 12% of its revenues come from Zynga

So, everything seems to have been well for Facebook. But that may not be the case in future. The issues that may affect the company's growth in coming years could be,

                   - data privacy regulations from the government
                   - increase in marketing expenses to sustain the revenues growth
                   - find out a mobile strategy that would help Facebook to explore new markets and people
                   - marketing strategies that help Facebook to retain members base (with innovative products/services)
                   - exploring new markets (e.g China)
                   - explore new avenues for generating revenues than depending only on advertising

Let's wish Facebook all the best with this fund raising in the new year!

Are ecommerce companies in India really sustainable?

We all know that ecommerce in India is growing at a rapid pace (around 40-50% a year) and presently valued at $10 billion. So everything seems to be on a very positive side as far as ecommerce is concerned in India. As a result, hundreds of new players are entering into this market every year. Some estimates claim that there are around more than 3,000 ecommerce companies in India.

So, how these companies manage themselves to differentiate their products and services from competition? There are many things that are common among all the ecommerce companies. viz cash on delivery, free shipping, security, new payment options like cash cards, EMI plans linked with credit cards, etc. But when it comes to differentiating factors there are very few things and that are captured only by very few companies. For example, some companies provide a great user experience and simple buying process. Another differentiating factor could be 'product offerings' i.e offering niche segment of products like kidswear, diamonds and other luxury items, etc.

So what's making these companies to mushroom in number? Well, everybody is competing for a share pie in this one of the fastest growing markets in the world. But all these companies tend to forget one main thing for any business to survival i.e profitability and scaling up (in terms of number of customers and revenues). There are few cases that has made many of these start-ups to revise their strategy. Recently, Taggle.com, an online electronics retailer, has announced to close its business due to increase in losses and the reason is it couldn't survive the intense 'price-war' that's going on among these so-called ecommerce companies.

So now the issue is about 'sustainability' in this space for the Indian ecommerce companies!

One good thing for customers though - great deals at an all time low prices!

Falling Rupee and how it affects you?

Rupee fell for eighth day consecutively on Wednesday to finish at 52.36 against USD. So there's been hype in the market on falling Rupee against USD. We can't blame anybody for this. This is a massive outcome of various things like Eurozone crisis, instability in global equity markets, etc. Investors are looking for safe investment horizons like government bonds that could shield them against any financial vulnerability.

India's central bank, RBI, is closely watching the situation is expected to issue rupee denominated corporate bonds to overseas investors to boost the ailing rupee. Also it plans to buy around Rs. 100 billion worth government bonds to ease the pain on Rupee. The Rupee has lost around 8% against USD since April.

Though the US economy is in a bad condition, factors like Europe's failure to bail-out the countries which are in financial trouble, make the investors' confidence to ruin on Euro. All these factors pushing up the USD value against many currencies (good or bad, it's USD getting the hit!). So one could expect the Rupee to gain in Q1 2012 as the European economy is expected to get some sort of bail-outs from the governments. Once the global confidence among investors roll back, then we could say that Rupee might be back on track against USD (in the range of 45-47).

Decrease in value of the Rupee is good for the people who are working abroad and sends money to their families here. Also, the imports get dearer. There might be increase in price of goods like mobile phones, laptops, TVs, etc in coming months as the import prices would be higher. Energy companies (like oil importers) would also bear the brunt by paying more on importing oil (no surprises if the fuel prices go up!). Exports would be less valuable now and companies that export goods to abroad could expect their top line revenues to come down. Many Indian IT companies that weren't prepared for this free fall of rupee would certainly face the heat in this quarter.

Will Kingfisher Airlines survive?

Everybody is talking about the financial position of Kingfisher Airlines, the second largest carrier in India with a market share of around 20%. Speaking only based on the financial numbers, yes, Kingfisher is in a dire situation. But before arriving at any conclusion, let's review about its recent quarterly results (three months ended Sep 30, 2011).

1. Revenues decreased by 19% Q-o-Q, may be an overall effect in the industry
2. Fuel expenses went up to a new level of 53% of revenues
3. Employee costs also went up by 5% Q-o-Q, constituting around 12% of revenues
4. Both Fuel and Employee expenses accounted for 65% of total revenues in this quarter, should really be a concern for Kingfisher
5. Cash at bank was about $44M at the end of the quarter, around more than 21% of short term loans payable within a year (as of March 31, 2011)
6. Total secured and unsecured loans as of March 31 ~ $1.4 billion
7. Kingfisher announced in its earnings call that it may require only around $100-$150M to meet short term needs (working capital)
8. There are some flip side as well -

- passenger load factor was down to 77%, compared to 82% in the same period last year
- reported a EBITDAR loss of around $25M, since two years
- reported a net loss of around $94M

Interesting to note is that around 75% of revenues were from domestic operations. So, increase in fuel costs in India would obviously have its impact on the margins of Kingfisher. Jet fuel costs are surcharged at a higher rate than many other countries, it's around 50-60%, which made the airliners to shed more money on fuels in India. This was the biggest cause for this financial mess at Kingfisher, followed by the increasing staff costs.

Fuel expenses were 'higher' in the previous quarter (Q1 2012), which Kingfisher was able to overcome due to its increase in revenues in that quarter. There were factors that made Kingfisher hard times this quarter - increasing fuel costs, employee costs and decreasing value of rupee against dollar.

Though the company is making all measures to cut costs like shutting operations in few loss making routes, Kingfisher has no other option.

All the company needs is an infusion of around $100-150M to save its day-to-day operations running. I think it can made it easily by various measures like selling more equities or converting debts to equities to sell stakes to the creditors, etc. Also the talks have already been through with various banks in India.

All the airliners in India are running in losses and this mounting debt may not be a 'significant' problem for Kingfisher and I hope the company would come up from the crisis and this would be a lesson for all the operators in India to tackle their working capital efficiently in order to maintain day-to-day business operations without any financial hitches.

Gold Vs Sensex

This is one of the most sought after season for aggressive short term investors. Investors are trying to buy as much of gold,, which is soaring for the record heights recently to nearly $1100 an ounce.

Investors are now trying to make very short term profits from stock markets and trying to reinvest in high returns commodities such as gold.

Hence today's 500 points up in the Sensex doesn't mean that positive factor is back in the market. Investors who are really interested in long term investments (1-2 years) should enter the market now. But this is not a good time for entering for real aggressive short term investors!

Sensex will stay in the range of 16000-17000 till Q1 2010. Higher volatility may affect the market sentiments in short term (say 3-6 months).

Bharti Airtel - Buy

Bharti Airtel recently announced its Q2 results with good numbers, but not upto the expectation.

Revenues increased by 9% to Rs.98.45 billion Y-o-Y and net profit up by 15% to Rs.23.7 billion Y-o-Y. Net margin was at 24%, relatively higher than a year before.

Here are some positive notes:

1. Customer based increased to more than 110 million as on Sep'09. This is up by 42% from last year same period.
2. Net debt came down to Rs.42 billion, lowest in last five consecutive quarters
3. Return on equity (RoE) is consistently above 30% for the past five quarters (though it was down from 36% in Sep'08)
4. Net debt-to-EBITDA was at 0.26, lowest in last five consecutive quarters. This is due to the decrease in net debt.
5. Interest coverage at 56, highest in last five quarters

Here are some concerns:

1. Average revenue per user (ARPU) came down to Rs.252, from Rs.331 in Sep'08.
2. Market share in mobile services fell to 23.5% from 24.6% a year earlier.
3. Operating expenses increase over last five quarters (though slightly less than previous quarter)
4. Return on capital employed (RoCE) was at 26%, compared to 36% in Sep'08.
5. Capital productivity (annualized revenue/capex) was down at 64% from 73% during last Sep'08.


Share price is at Rs.292, approaching its 52 weeks low, Rs.290. The stock touched Rs.495 (its 52 weeks high) and hence the stock is currently trading at deep discount. Moreover the trading volume is at around 6.5 million.

Considering its positive fundamentals and free-falling stock price, Bharti Airtel is a 'GOOD' pick now. Investors considering long term investments with 1-2 years investment horizon, can make a call now.

US Stocks stumble

US stock market witnessed another day of bolt as the markets crashed due to the disappointing numbers on consumer spending. US Commerce department released the consumer spending data for Sep'09, showing a decline of 0.5%, first time in five months.

Dow fell by more than 1.5% to 9800 (down by 160 points). S&P 500 also came down by 2% to 1044.

However this fall in US markets may not have greater impact on Indian market on Monday. Sensex is moving based on the selling pressure by the investors who have invested in emerging markets. Moreover the market fell by more than 1% on Oct 30, a day after US markets bounced back (official data showed that US is recovering from recession). However Sensex is expected to be highly volatile in coming week as global markets are tumbling.

Sensex continues to fall...!

Sensex fell for consecutive fourth day to end below 16,000. The market closed lower by more than 1% to end at 15896 on Oct 30. This is led by telecom and oil sector companies.

Bharti Airel announced its Q2 results on Oct 30 in a positive note. But did not match the market expectation. The stock down by more than 6% to end at Rs.292. Airtel's lowest in a year was Rs.290. This shows that the stock is moving towards to break its lowest support next week.

Long term investors who can hold their investments for 1-2 years, can now consider investing in Bharti Airtel.

Sensex is expected to be in the range of 16000-17000 in coming weeks.

Bharti Airtel profit up, but lower than expected

Bharti Airtel, India's largest telecom service provider, has announced that its net profit was up by 13.4% Y-o-Y, during the quarter ended Sep 30, 2009. Net profit was at Rs. 23.21 billion ($497 m).

Revenues increased by more than 9% to Rs.98.45 billion.

However these numbers are lower than many expected.

The Indian telecom market is now entering into a new phase, 3G and 2G. Many new foreign operators are entering into the market and announcing various pricing schemes to customers, making Indian companies to react as well. This pricing pressure may have an impact on operating results of telecom companies in next quarter, or even next year also.

Consolidation is the better way to handle the current situation in Indian telecom market. Many 2G licensed telecom companies are selling stakes in their companies to foreign entities, making the competition even bigger. Indian companies may consider in acquiring these smaller telecom companies who have granted licenses.

Sensex in November'09

As the US and Europe markets are stumbling, Asian markets are also expected to be more volatile. However China and India may have a less volatile market movements in November'09.

This is supported by expected strong economic growth (around 6.7%) in 2009-10 and better turnaround results from India Inc.

Moreover, Sensex is expected to be in the range of 16500-17500 in Nov'09.

We can expect the market to be more volatile and touch record lows in recent days on 29 Oct'09. Again this is backed by the fall in Dow on previous day.

Anyway this will be a season for rational investors to get their picks!

Welspun Gujarat - Where the stock heads?

Welspun Guajarat is one of the hottest stocks now in the mid-cap sector. The company is the seconda largest line pipe company in the world. The thing that keeps the stock rocking is its order book. The company recently announced that it had reached the landmark of Rs.10,000 cr in its order book. This ensures the better cash flow for Welspun in coming years, atleast throughout 2010.

The company's stock was at around Rs.50 in March/April this year, now trading at Rs.280.

Strong fundamentals such as impressing order book, strong financial results, good management, global presence,etc.

Welspun reported that its net profit has increased by more than 90% Year-on-Year to Rs.138 Cr for the quarter ended June 30, 2009.

EPS went up by more than 200% Y-o-Y to Rs.7.38 for the same quarter.

The company is expected to announce its results for the quarter ended Sep 30 with the same level of growth.

This is one of the best picks in the market. It has already reached its peak in the market, trading at Rs.380.

Anyone who wants to invest for atleast 1-2 years, this is the best pick!

Sensex - Short Term Outlook

Global markets are back on track, thanks to the promising results by corporates. India Inc is showing a healthy start towards Q3. Sensex has been recovering well from its 16,000 levels towards 18,000. Hope this may be reached in this month!

I have some stock picks expected to deliver a really 'good' returns in next 6-12 months. Here is the list:

1. Welspun Gujarat
2. Tanla Solutions
3. Gayatri Projects
4. Crompton Greaves
5. SAIL
6. Essar Shipping
7. Sujana Towers
8. GVK Power

Sensex is expected to be in the range of 16,000-18,000 in next 3 months.

Strong Oil Demand Forecast and BOLT Technology

BOLT Technology - FY 2009 Results

Top line revenues down by 21% to $48.9 million for the fiscal year ended June 30, 2009. This is mainly due to the decrease in sales in two main reporting segments: seismic energy sources and seismic energy source controllers. More than $11 million decrease in sales reported in seismic energy sources segment. This is followed by air gun replacement systems segment (decreased by more than $2 million) and seismic energy source controllers segment (decreased by $0.6 million).

Only segment that witnessed growth in sales was underwater cables and connectors. Sales from this segment went up by $1.4 million, from FY’08.

However gross profit margin increased to 49% for the year, compared to 46% in 2008. This is due to the higher price level and decrease in material costs.

BOLT uses high quality steel in its manufacturing process, hence any drastic increase or decrease in prices of steel could adversely affect the profit margin of the company. Cost of sales was 51%, lowest in last five years. This somewhat helped the company to achieve the highest net profit margin of about 22% in 2009.

40% of revenues from just three major customers

Top three customers (Schlumberger (16%), Compagnie Generale (15%) and Petroleum Geo-services (9%)) constitute 40% of sales in 2009. This is a real concern for any investors, though the company was able to book orders from other clients as well.

Risk Factors

- Oil price movements affect the sales of BOLT directly; Increase in oil prices improve the marine seismic activities, which in turn increases the sales
- Global economic conditions affect the demand for oil and gas products. This in turn will have an impact on BOLT’s top line revenues
- Dependency on few major customers for major portion of revenues
- 85% of sales from outside US


Relation between Oil Price and BOLT’s Sales

There’s a correlation of more than 0.5 between the oil price and sales. This however clearly do support that BOLT’s sales don’t rely wholly on oil price movements.

International Energy Agency (IEA) recently increased its demand forecast for global oil demand in 2009 & 2010 to 84.4 mb/d and 85.7 mb/d respectively. This is strongly supported by increasing demand in North America and non-OECD Asian countries. Hence BOLT could report an increase in sales in 2010 as the projections for oil demand and price seems to be optimistic.

Strong Fundamentals

BOLT’s average return on equity (RoE) in last five years stands at a healthy 18.5% and return on assets (RoA) at 16.1% for the same period.

2005-009
RoE 18.5%
RoA 16.1%
EBIT margin 26.2%
Net profit margin 19.0%
Sales/Share ($) 4.8

Cash and cash equivalents increased by 34% Y-o-Y to $25.69 million in 2009. Moreover the company does not hold any long term liabilities.

BOLT spends an average 1% of sales on research and development activities. This helps the company to use latest technology based products to clients and also improve its manufacturing processes efficiently.

Valuation

P/E 10.17
P/B 1.60
P/S 2.18
P/CF 10.94
Market Cap ($ million) 106.60
EV ($ million) 78.87
EV/Sales 1.61
EV/EBITDA 4.84