Sensex

Monday, December 21, 2009

DG - EOD

 

IDBI starting new innings...
Monday, December 21, 2009
 
End of day…
 
Street in holiday mood as fund managers are on holiday. Extreme pessimism has gallored in the street and the famous quote is that bull market born in pessimism and die in euphoria. I have not seen this euphoria ever since Dec 2007 and Jan 2008.  
 
In this consolidation move there could be possibility of market testing 4850 or even 4800 is not ruled out. 
 
Yet, I would not suggest investor to trade on sell side. Also it will not make them happier even if they enter in the sell bargain and earn short term gain. They will have to cough up the entire gains plus capital some time later.
 
We are extremely bullish on IFCI and IDBI. Whenever these stocks participate in the rally Cni name cannot be ignored.
 
IDBI holds Govt PSU stocks worth Rs 11000 crs which was shown at the book value at Rs 3700 odd crs in the Balance Sheet. This includes NSE, Stockholding, Sidbi and lot more.
 
Till 1998 Sidbi was the subsidiary of IDBI and the then FINMIN had decided to de-link the SFC's from IDBI and brought under the control of SIDBI. As a result 49% stake of SIDBI was sold by IDBI. Subsequently another 30% stake was sold in 2004 @ R 30 per share.
 
SIDBI was established on April 2,1990. The Charter establishing it,The Small Industries Development Bank Act,1989 envisaged SIDBI to be 'the principal financial institution for the promotion, financing and development of industry in the small scale sector and to co-ordinate the functions of the institutions engaged in the promotion and financing or developing industry in the small scale sector and for matters connected therewith or incidental thereto'.
 
 SIDBI is a professionally managed institution functioning with considerable emphasis on corporate governance. The Bank has been rated as one of the top 25 Development Banks in the world by the 'The Banker',London.
 
However over years SIDBI has become a very strong PFC controller. In fact, Sidbi has paid Rs 180 crs advance tax for Sept 2009 quarter ( P Y Rs 55 crs ). Based on de grossing the full year tax could be as high as Rs 600 crs ( PV Rs 350 crs ). With revenue over Rs 2082 crs Sidbi could earn PBT of over Rs 1300 crs. Equity is Rs 450 crs and hence the earnings before tax is Rs 28 to 29.
 
Based on these figures the 8.6 crs shares held by IDBI is worth Rs 2580 crs. Thus only Rs 86 crs invested by IDBI is now turning out to be Rs 2500 crs plus. IDBI equity is Rs 724 crs and hence I feel that IDBI share need to be re adjusted by Rs 35 which is realizable from SIDBI in short term.                         
 
The main reasoning for IDBI to sell SIDBI are more than one. GOI is looking out for listing of SIDBI as the process of disinvestment continues. IDBI requires funds for business expansion as the rights issue was about to be cleared where GOI has earmarked Rs 9000 crs for IDBI rights issue.  
 
If IDBI is allowed to transfer the SIDBI stake to either LIC or any other GOI concern then for IDBI there is cash flow and GOI will be happy to give such liquidity to keep the bank going for Basel requirement.   
 
Apart from the same we have already seen margin expansion in IDBI when bank like ICICI has said that the credit off take is minus. IDBI at current market value is pure value play where the PSU stock valuations are not factored in. Only idiots will enter this stock when the value unlocking happens.

 

If you hate a person, you hate something in him that is part of yourself. What isn't part of ourselves doesn't disturb us.

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Regards

BigGains !!
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