Shyam Sistema - Cash Gullzing Continues

SSTL gets Rs 1,000-cr loan from ICICI, Barclays Bank

Sistema Shyam TeleServices Ltd (SSTL), which offers telecom services under the MTS brand name, today received a loan totalling $200 million (nearly Rs 1,000 crore) from two banks, which will be used to further scale up its operations. The company has raised $100 million (Rs 500 crore) from ICICI Bank and another $100 million (Rs 500 crore) from Barclays Bank, SSTL said in a statement.

"We plan to utilise the raised money to further scale up our telecom operations in the country," SSTL Chief Financial Officer Sergey Savchenko said. This loan has been proportionally secured by Russia's Gazprombank through a standby letter of credit and bank guarantee. The entire $200 million loan has been received by SSTL in a single tranche, which is payable within three years, by 2014.Last year, the Russian government made a $600 million capital infusion to pick up a stake in the company. SSTL is a joint venture in which Russia-based Sistema holds a 56.68% stake, while the Russian Federation holds 17.14%, Shyam Group of India another 23.98% and the remaining 2.2% is held by the public.

MTS in India has over 13 million wireless subscribers and under the MBlaze brand provides mobile broadband services to more than 1,000,000 customers in over 200 cities across the country.

Satyakam Mishra (reachsatyakam@gmail.com) 

Source: Press Trust of India / New Delhi September 29, 2011

Revocation Of Suspension

Norms For Revocation Of Suspension, Where The Suspension Is For A Period Exceeding 1 Year (Effective From July 1, 2011)

The companies which are seeking revocation of suspension will be required to comply with the norms as given here under:

Particulars	Norms
Issued and Paid up capital	Minimum paid up capital of Rs. 10 crores OR Minimum networth of Rs. 50 crores (excluding revaluation reserves) in 3 immediately preceding financial years
Profit making track record	Distributable profits in terms of sec. 205 of Companies Act, 1956 for atleast 3 out of 5 immediately preceding financial years based on audited financial results with the last financial year reporting profit. Provided that extraordinary income shall not be considered for calculating distributable profit. Provided further that latest 3 Financial Years should comprise a period of atleast 12 months
Public Shareholding	Meeting with the requirements of SCRA, SCRR and Listing Agreement.
No. of public shareholders	Minimum 500
Trading in Compulsory Demat	Minimum of 50% of the public shareholding should be held in demat form. Provided that where the company has not signed with either/ both the depositories for dematerialization, it shall submit a letter from the relevant depository rejecting admission of the security in the depository
Trading in Compulsory Demat	Information Memorandum as provided in Schedule II of Companies Act, 1956 to the extent applicable, as certified by the Company Secretary/ MD of the Company
Networth	Minimum networth of Rs. 50 crores (excluding revaluation reserves) in 3 immediately preceding financial years

 Note:

1. Entire issued capital of the company must be listed.

2. No investor complaints pending against the company.

3. The company is in compliance with clauses of the listing agreement, filings under SEBI regulations/ circulars, SCRA and SCRR.

4. The shareholding of promoter and promoter group entities shall be under lock-in for a period of 6 months from the date of commencement of trading, post revocation of suspension.

5. Company should have its own website.

6. Payment of reinstatement fees as applicable

Revocation Of Suspension, Where The Suspension Is For A Period Less Than 1 Year (Effective From July 1, 2011)

The companies which are seeking revocation of suspension will be required to comply with the norms as given here under:

1. Entire issued capital of the company must be listed.

2. No investor complaints pending against the company

3. The company is in compliance with clauses of the listing agreement, filings under SEBI regulations/ circulars, SCRA and SCRR

4. Company should have its own website

5. Payment of reinstatement fees as applicable

Once Hidden Now Discovered - OMDC & Eastern Investment

Shareholders have been demanding that the firm list its shares on BSE and NSE to give them an exit opportunity which they eventually got which started trading on National Stock Exchange (NSE) with effect from 29.09.2010.

There were some developments that occurred last year. Execution of the scheme transformed the corporate identity of three companies under the aegis of Bird Group which were converted into Government Companies from their earlier status of government managed companies.

Restructuring process had another significant effect especially for EIL. Apart from its change in status to a government company, the very scheme uplifted EIL to the status of Holding Company of two operating mining companies. The Orissa Minerals Development Company Limited (OMDC) and The Bisra Stone Lime Company Limited (BSLC) are operational units of the Bird Group of Companies which was placed under the management control of Rashtriya Ispat Nigam Limited.

OMDC has estimated iron ore reserves of 200 million tonne and Bisra Stone Lime Company has limestone reserves of 367 million tonnes and dolomite of about 280 million tonnes.

Financials:

OMDC: The results of 2010-2011 were unappealing with sales falling from 84 cr to 49 cr, net profit falling from 74 cr to 22 cr, EPS falling from Rs 1240 to Rs 368.

The company is planning to put up 2 million tones beneficiation plant and 2 million tones pellet plant at Barbil, district – Keonjhar, Orissa, to beneficiate low grade fines which are not marketable today.  Necessary formalities have been completed for single window clearance from Government of Orissa and it is hoped that very shortly, company may get the said clearance. Consultancy Development Center (CDC), under Ministry of Science & Technology, Government of India, has been appointed as a consultant to fix an agency to build the plant on turn-key basis. The estimated cost of project is about Rs. 1,000/- crores.

The spike of 20% yesterday was conceivably because Orissa Minerals Development Company Limited has recommended a dividend of Rs. 55.30/- per share for the financial year ended March 31, 2011.

Eastern Investment: It achieved an income level of Rs.12.18 crores comprising Rs. 9.57 crores from investments and Rs.2.61 crores from other sources in 2009-10.  PBT and PAT stood at Rs. 11.93 crores and Rs. 11.07 crores respectively. The management recommended a dividend of Rs.11.50/- per share of Rs. 10/- for the year 2009-10.  The future prospects of the company will be depend on the workings of OMDC as the company’s major earning comes from its investments and the company proposal

Normally the convention has been to value a pure holding company with no operating assets of their own at a discount unless the markets have been ripe with expectations of merger and consolidation or an IPO. In such cases the holding is valued at the NAV or close to NAV but in other cases the valuation is at a discount – prima facie. I don’t think EIL will go for IPO which suggest that it will forever trade at significant discount.  There was various news that Rashtriya Ispat Nigam Limited (RINL) plans to seek the approval of the government to restructure its equity capital in the near future. The current equity base of the company was very high at Rs 8,000 crore and no company would be comfortable having a such a huge equity base.

 

Investment Theme:

 

I believe both EIL and OMDC are currently overvalued since the listed operational companies are not valued over PE of 14-19 while OMDC is trading at a PE of 135.  Though I know it’s not an exact science of valuation but it gives a fair view.

The profitability of OMDC’s pricing power is tied directly to the steel cycle which is currently weak. According to China Iron and Steel Association data, China’s steel production in CY2011 is expected to increase by 6.0% yoy over the coming five years. The Australian Bureau of Agricultural and Resource Economics and Sciences expect Chinese crude steel production to reach 674mn tonnes (+7.5% yoy) in CY2011. That could be one of trigger but most of the ore will be used internally thus even if there is buoyancy, it will not impact the result on positive basis. 

 

Valuations

	OMDC	EIL
Equity Capital (Shares)	600000	967300
Current Market Price (Rs) (Note 1)	51000	6200
Market Capital (Cr) (Note 2)	3060	599.73
Valuation		1035.3
Note 1	Valued at Current Trades, Average of Bid and Ask Price
Note 2	At Price of 6200, the EIL is valued  at 600 cr which is 40% to his NAV.

 

I request the readers to share their views.  Satyakam Mishra (reachsatyakam@gmail.com)