investingwithindia

Investing in Daal (Lentils, Pulses etc)

2011-03-15T07:16:00.000-07:00

So we have all heard about the agricultural story and how emerging markets are moving up the value chain and need more protein. In addition to meat, lentils are a great source of protein especially for vegetarians (think India in addition to Middle East where pulses are consumed). Lentils are a staple part of the diet (in the emerging market as a whole) and the country despite being a major producer is not able to able to overcome supply side constraints on both production and distribution sides.

Refer to charts on http://wapedia.mobi/en/Lentil

Refer to charts on http://www.fao.org/docrep/006/y4343e/y4343e02.htm

Agriculture in India, over the long term may be severely challenged due to rapidly dropping water tables and urbanization. Even if India meets the agricultural challenges, India will remain an importer in the immediate future.

Refer to charts on http://conservationfinance.wordpress.com/2006/08/

Why Alliance Grain Traders?

1. They provide value-added processing of pulses and buy lentils, peas, beans and chickpeas from farmers around their 24 facilities located in the best pulse growing regions in Canada, the United States, Turkey, Australia and China and ship them to over 85 countries around the globe.

Value added processing covers the following function - Alliance Grain Traders state-of-the-art production facilities features production lines for cleaning, sizing, splitting, colour-sorting and packaging a full line of lentil, chickpea, pea, bean and canary seed products.

2. Strong management with a dividend paying stock that has experienced a bit of a pull back. Investor presentations can be seen at http://www.alliancegrain.com/investor-relations/presentations.html

http://finance.yahoo.com/q?s=AGT.TO

Canadian Supplier to The Tata Nano

2011-01-13T11:13:00.000-08:00

CV Tech group of Quebec has supposedly been talking to Tata Motors about supplying the automatic transmission for the Tata Nano according to a report in The Times of India - http://timesofindia.indiatimes.com/city/ahmedabad/Tata-Motors-in-tie-up-talks-with-Canada-firm/articleshow/7273401.cms

The Nano has been a bit of a sales dud in India so far. If you think the trend may end up being reversed then CV Tech group - http://finance.yahoo.com/q?s=CVT.TO may be an interesting play to look at.

Making Movies A Bit More Realistic

2011-01-04T06:42:00.000-08:00

Question
How can movie theatres squeeze out more revenue from each seat?

Answer
Make the movie going experience even more immersive. A case in point is Quebec, Canada based D Box Technologies - http://www.d-box.com/

Value Proposition
While not quite the sci-fi future of virtual reality, D Box seems to have quite a unique niche when it comes to gaming, home theatre systems and movie going. Imagine being pitched and feeling the tremors and shakes as the celluloid action unfolds.

Cinema goers may well fork out the extra dough for watching the movies on D-Box seats. Please refer to this link for a users review of the seat - http://www.marketnews.ca/content/index/page?pid=5602

Apart from movies, the large gaming market, home theatre and perhaps even the simulator markets could be decent targets.

Test Case
For a small company, D Box has been able to tie up with some large studios and cinema chains in Canada, USA, Japan and Netherlands. Their web site lists all out the number of seats and additional details.

Pricing
They just did an equity offering at 65c (http://business.financialpost.com/2010/11/16/d-box-technologies-gaining-traction/ and http://business.financialpost.com/2010/12/14/d-box-ready-for-prime-time/ ) Canadian and the stock trades around this price. So if you feel this could be the next IMAX coming out of Canada, it may be time to jump onto the band wagon. http://finance.yahoo.com/q?s=DBO-A.V

I was looking for a stock that would let overseas investors play on India’s appetite and love affair with the movies when I came across D Box Technologies.

Making 8.5% in a month - The Big Easy?

2010-12-31T06:07:00.000-08:00

Question
How would you like to make a quick 8.5% in a month or so?

Answer
Look no further than CIC Energy listed in Toronto (http://finance.yahoo.com/q?s=ELC.TO&ql=0). Currently trading at $ 6.84, shareholders as of Dec 8 are slated to vote on the acceptance of a buy out offer from JSW (Jindal group of India) in a special shareholder meeting on Jan 21, 2011.

The Discount
The buy out offer from JSW is at $ 7.42 per share. CIC shares trading at $ 6.84 represent a decent potential return of 8.5% for a months worth of lock in. Buy outs from Indian companies on the Toronto Stock Exchange are not that common and that could perhaps explain the lack of investor confidence in the closing of the deal. That lack of confidence of course is why there is an arbitrage opportunity.

Tau Capital
Once CIC Energy has been acquired, I hope Tau Capital http://www.taucapital.com), the folks that developed and monetized CIC Energy, will focus on taking Talon Metals Corp. to the next level. Talon seems like a good play on multiple commodities in Brazil.

Feeding India

2010-12-29T10:29:00.000-08:00

Here is a great slideshow on why India will be an increasingly large consumer of Potash - http://www.potashcorp.com/industry_overview/2010/markets/india/1/

Once you factor in the growing population, need to eat, need to eat more protien, it becomes obvious how Potash (required for crops as well as animal feed) is a commodity that will look to re-scale its 2008 peak soon.

With Potash Corp out of the take over limelight - http://www.bhpbilliton.com/bb/investorsMedia/news/2010/bhpBillitonWithdrawsItsOfferToAcquirePotashcorpAndReactivatesItsBuybackProgram.jsp, the focus is back on the juniors (http://www.reuters.com/article/idUSTRE6BI0MN20101219)

So far no Indian firm has made a play for a Potash resource. They have made plays for coal, iron ore and oil deposits across the globe.

Of all the juniors, I like Western Potash, the most - http://ca.finance.yahoo.com/q?s=WPX.V

Playing the Potash juniors is suited for the patient at heart as some ofthe majors have capacity expansion plans but as we have seen with the Baffin Island and New Millenium Capital story - every one wants their own captive supplies.

New Millennium Capital Corporation

2010-09-16T13:15:00.000-07:00

For resource hungry enterprises in Asia, Australian, Indonesian and natural resource assets from the Western Coast of North America have made the most sense.

Corus Steel, in the UK, part of the Tata Group has had to elsewhere to secure its supply of Iron Ore. The Tata group collectively with Corus is the 8th largest producer of steel in the world in large part due to the volume numbers of Corus.

The Tatas have exercised their option to fund and the development of the (Direct Shipping Ore) DSO mine owned by the listed New Millennium Capital Corporation. In return for bearing 80% of the cost of developing the mine, the Corus arm of the Tata Empire will buy all of the iron ore produced by the DSO mine near Schefferville, Quebec.

The Captive Mine

The mine is supposed to start in 2012 and produce 4 million tones of order over the course of its life of 10 years.

At a conservative $ 50 per ton of iron ore, New Millennium is looking at a top line of $ 2 billion from this project alone.

Market Pricing

I like the fact that there is no talk of preferential pricing and Tatas will be paying market price for the ore that they buy. Sure, there may be volatility along the way, but over the course of 10 years, the volatility should be mostly trending upwards.

Tata Ownership
The Tatas own 27.4% of New Millennium and have a stake in seeing the mine built and operate efficiently.

Potential Upside

This brings us to the Taconite project (with the LabMag and KeMag mines). The deposits in these mines are manifold than the DSO levels. The Tatas have until Dec 31, 2010 to signify their interest in this project.

Patient Capital

My personal style of investment is to invest in projects which have a gestation period. That allows an investor to come in while the project plant is being set up and the stock is out of the news for some time.

This also allows for investors to maximize the upside as they see the stock break out once production is imminent.

Sources

http://www.nmlresources.com/pdfs/FactSheet.pdf
http://www.business-standard.com/india/news/tata-steel-securing-growth/408208/
http://www.livemint.com/2010/09/15232736/Tata-Steel-hedges-against-ore.html

GeoGlobal Resources:Another Play on the Krishna Godavari (KG) Basin in India

2010-08-25T12:26:00.000-07:00

If you have been following the changes in policy and the recent success in oil and gas exploration in some non traditional regions, then India may have shown up on your radar.

The KG basin off India’s western coast, is home to the D6 mega gas fields owned by Reliance Industries (http://finance.yahoo.com/q?s=RELIANCE.NS) and Niko Resouces (http://finance.yahoo.com/q?s=NKO.TO).

Cairn India (http://finance.yahoo.com/q?s=CAIRN.BO) meanwhile is in the middle of buy out/merger talks with Vedanta (http://finance.yahoo.com/q?s=VED.L). Cairn India’s crown jewels are in the onshore eastern state of Rajasthan.

For an energy deficient nation like India, growing at a rapid pace, both finds are a heavenly gift.

So where might be the next Niko Resources?

I would like to point to GeoGlobal (http://finance.yahoo.com/q?s=GGR) resources as a company that could be the next NIKO if it manages to overcome a couple of hurdles.

What I like about GGR:

1. Its listed on the Amex in the US and hence overseas (non Indian residents can buy in). Most Indian stocks are off limits to non Indians as only a handful of Indian companies have ADRs and GDRs.

2. GGR has a 5% stake in the DeenDayal block in the KG basin. I do not know much about oil & gas exploration, but know that you are likely to find some where other folks have discovered hydrocarbon deposits.

3. GSPC as a partner (Gujarat State Petroleum Corporation Ltd.) a state run oil firm (owned by the state of Gujarat in India) owns 80% of the Deendayal block. GSPC is not public yet but they have tried to go public in the past and are at it again. Their draft prospectus can be found at http://www.sebi.gov.in/dp/gspcdraft.pdf

Having a strong Indian partner is a double edged sword (more about that later).

4. The DeenDayal Asset

A few years ago, the Deendayal deposit was touted as holding 20 tcf (trillion cucbic feet) of natural gas. However, the DGH (Directorate General Hydrocarbons in India) has only notified 2 tcf and has recently approved a field development plan of $ 1.8 billion - http://www.istockanalyst.com/article/viewiStockNews/articleid/4387656

5. Other Blocks

GGR has exploration blocks in 4 key basins in India – KG basin, Cambay Basin (in Gujarat), Deccan Basin (Southern India) and Rajasthan Basin (where Cairn India found oil). More details can be found at http://www.geoglobal.com/default.aspx?id=39

GSPC has reportedly found gas in large quantities in the Cambay Basin too http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-strikes-huge-gas-reserve-in-Cambay-basin/articleshow/6230713.cms but extracting the gas will be a different story.

Things to Watch Out For:

1. The GSPC and GGR dispute

Page 19 of the GSPC draft prospectus http://www.sebi.gov.in/dp/gspcdraft.pdf has information on the dispute with GGR. The draft prospectus does not mention that GSPC may have not shared some updates about the fields in question since the dispute took a serious turn. http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-GeoGlobal-may-attempt-to-settle-gas-dispute/articleshow/6021669.cms

Efforts have been made to resolve the dispute but so far, nothing has been reported.

2. Long Gestation Period

Assuming that GSPC gets going peak output from Deendayal is expected around 2015-2016.

If everything works out, only a patient investor will be rewarded handsomely.

Recommendation:

If you believe that India’s initial success in the E&P can be replicated then you could consider a small, long term investment in GGR.

Reliance Industries: An Indian Conglomerate Awakens

2010-06-25T07:47:00.000-07:00

As much of the mayhem is over, the markets remain fearful that the next show to drop would be some states/countries going belly up. Perhaps they are right. Either way, what is clear is that if you invest for the long haul and focus on a part of your portfolio on growth opportunities in the developing world, you will likely do well.

India’s largest corporation, Reliance Industries Limited (RIL) represents a great opportunity for a diversified play on one of the larger BRIC opportunities. And for non Indian investors, RIL stock is available as a GDR in London, UK.

Core Business:

RIL, started off in the polyester space and has undergone a massive backward integration. They own the worlds largest petro-chemical complex in the Western state of Gujarat in India. The immediate growth are for Reliance is the monetization of the D6 natural gas deposits in the Krishna Godavari (KG) basin off India’s eastern coast.

RIL is a bit pricey at a PE of 21 http://www.business-standard.com/stockpage/stock_details.php?bs_code=1331 so if may want to wait for the right opportunity. However, this is a business that has a net margin in the high teens (fluctuating with refining margins for now, until the gas production from D6 is ramped up) and has many things on the go for it - http://www.business-standard.com/india/markets/dataresult.php?leftnm=0&subLeft=7&selcat=1&subCnt=1&selsubcat=Quarterly%20Results&txtSearch=&topsub=&ToShow=Data&BSCODE=1331&Type=61

What does the future hold for Reliance:

1. More Upstream & Downstream activities in the energy exploration sector in India

Upstream

The D6 find, the petroleum finds by Cairn India, additional finds by reliance on the West cost of India in Gujarat all show signs that many of the under explored blocks in India hold reasonable potential of additional oil and gas finds.

The D6 oil find as an example, is just 1 of many blocks that Reliance owns amongst others in the vicinity http://www.energy-pedia.com/article.aspx?articleid=138085 and even D6 has not been fully explored.

Downstream

RIL had a chain of gas stations (900 company owned and 500 franchise owned http://in.reuters.com/article/idINIndia-44200920091124?feedType=RSSfeedName=businessNewsutmsource=feedburnerutmmedium=feedutmcampaign=Feed3Areuters2FINbusinessNews28News2FIN2FBusinessNews29) across India that were shut some time ago as gasoline (petrol) was sold at subsidized rates in India. Many of them re-opened late 2009.

The government of India on June 24, 2010 however has decided to end those subsidies and move to a market driven mechanism for the pricing of gasoline - http://online.wsj.com/article/SB10001424052748703615104575328281829586188.html

This along with eventual decontrol of diesel prices at an undetermined date should allow RIL owed gas stations to make a comeback across the country at retail level.

2. A clean break in the Ambani versus Ambani dispute

For a few years now, the two sons of the late founder Mukesh Ambani (RIL) and Anil Ambani (non RIL assets and businesses) had been sparring in India’s courts about allocation of natural gas at a preferential rate for the younger brother. As part of a non-compete the elder brother Mukesh was restricted from having RIL enter some key areas of business like telecom, power etc. These are business areas where the younger brother Anil operates in.

The non compete was scrapped in May and RIL is now free to operate in any business sphere it wishes to. http://www.reuters.com/article/idUSTRE64M13D20100523

3. Reliance Infotel

India recently concluded its auction for 3 spectrum and RIL has come in and bought 95% of Infotel. Infotel was the only company win spectrum in all 22 service areas in India - http://news.bbc.co.uk/2/hi/business/10296831.stm

The billion dollar price tag is easily affordable given that the D6 natrual gas find is projected to spin off billions each year - http://www.thehindubusinessline.com/2009/04/03/stories/2009040351930200.htm

India has been adding 20 million or so cell phone subscribers each year and the cell phone towers can barely keep pace. RIL executives were part of setting up Reliance Infocom, the wireless company owned by the younger brother Anil so this is not an alien space for them. Moodys however, does rate this venture a bit risky, so you should do your own homework - http://www.businessweek.com/news/2010-06-21/reliance-industries-risk-rises-on-telecom-unit-says-moody-s.html

4. Reliance Retail

For those of you who have not lived or been to India, it may come as a surprise that the retail distribution in India is massively fragmented. Inefficient, mom and pop stores are encouraged and efficient chains are constrained as they are seen as evil corporations devouring the livelihood of the self employed.

Despite that Walmart has made a play for India through a joint venture with another Indian company (unlisted) and as middle class aspirations change, it is natural the people wish to shop in a better ambience.

Reliance Retail, India’s largest grocery chain (1,150 stores and 5.5 million loyalty members) is closing in on $1 billion in sales and the company hopes to grow 10 fold over the next 5 years - http://www.theaustralian.com.au/business/in-depth/ambani-flags-bigger-retail-role-at-reliance/story-e6frgaho-1225882724159

Reliance has multiple formats of organized retail being tested in India for a variety of verticals apart from groceries.

5. Reliance & Shale gas play in the US

If you believe in the future of shale gas in the US, then that’s another reason why you should think of Reliance. Reliance has closed two shale gas deals in the US this year - 45% stake in Texas, US-based Pioneer Natural Resources Co. for $1.32 billion in June and In April, RIL took a 40% stake in Atlas Energy Inc.’s core Marcellus shale acreage position in the US for $1.7billion.

Apart from just access to the promising acreage RIL is also intent on learning new gas extraction technologies - http://www.livemint.com/2010/06/24103938/RIL-acquires-Pioneer-stake-for.html

6. Reliance & SEZs

Reliance has two very big SEZ (Special Economic Zone) projects that have been hanging fire for some time. The two projects (MahaMumbai and Haryana SEZ). With the real estate boom having abated in India, many players have chosen to hand back the land they acquired to the government. Land acquisition is very touchy subject with farming communities and the 2 SEZs (if the come to fruition) could be a game changer for RIL.

The Haryana SEZ (close to New Delhi) is showing some sings of life with reports of a possible Japanese partner picking up equity http://birlaa.com/2010/04/12/mitsui-in-reliance-sez-haryana/

The Raigad SEZ (close to Mumbai) is the second mega SEZ that RIL is pushing for but the Supreme Court has ruled against speeding up land acquisition and the farmers have voted overwhelmingly against selling their land and do not wish the state to acquire their land either - http://timesofindia.indiatimes.com/city/mumbai/CM-to-decide-fate-of-SEZ-in-Raigad/articleshow/5241174.cms

7. Reliance IMG

RIL has also singed an agreement with IMG, the global sports marketing conglomerate to develop pro-sports leagues in India. If you do not follow the business of sports, you may not be aware that a cricket league in India has gone from zero to USD 4 billion in 3 years http://www.business-standard.com/india/news/ipl-brand-value-doubles-to-413-bn-brand-finance/89167/on

IMG manages the execution of the IPL and have made a couple of forays in India earlier so they are familiar with the landscape.

Mukesh Ambani personally owns the Mumbai franchise in the cricket league (IPL-Indian Premier League) and clearly sees how the young population of India can be hooked on to sports other than cricket. As part of that Reliance-IMG has assigned 30 year deal with the Basketball Federation of India (BFI).

With no indoor stadiums or pro-league in basketball, it will take a lot of time and investment before a serious replication of the IPL can be attempted, but long term, for a country where almost half the population is less than 30 years of age, pro sports leagues does seem like the place to be. http://www.imgworld.com/press_room/fullstory.sps?iType=13708&iNewsid=6650053&iCategoryID=

8. Stock Split

Late last year (October, 2009) RIL stock was split (1:1) http://www.ril.com/downloads/pdf/PR07102009.pdf

RIL has a history of stock splits to reward its investors. The founder (father of Mukesh and Anil) Dhirubhai Ambani, was the catalyst in many ways in developing the equity culture in India and he always rewarded the retail investor.

With all of the above projects having long gestation period and RIL having the free cash flow to fund the capex, I strongly recommend buying and holding this stock for the long haul (until the next stock split).

9. Additional Expansion

RIL has aggressive plans to enter the power (electricity) generation http://www.businessweek.com/news/2010-06-18/reliance-industries-ready-for-big-surge-forward-update1-.html and chemical products http://www.expressindia.com/latest-news/RIL-mulls--9-bn-investment/635634/

Recommendation

India, a market of 1 billion plus people is chronically energy starved. The state has finally realized this and they have planned for what they call UMPP (Ultra Mega power Project, I believe). These mega power projects are supposed to be granted expeditious approvals (although it might still take a couple of years). So far IL was locked out of the bidding due to the non-compete with Anil Ambani. But now with that gone, RIL is once again a 21st century growth stock India play.

For those of you who are wary of investing in bloated conglomerates, I hear you. However, I would urge you to think of RIL like a mutual fund and take the great with the not so great business results that may lie in store for its business units.

Pricing information on the RIL GDR is available at http://www.lse.co.uk/shareprice.asp?shareprice=RIGD&share=reliance_industries_ld_gdr_(each_repr_2_ord_inr10_level1)(144a)

Gas Authority of India Limited (GAIL)

2010-01-13T08:10:00.000-08:00

The Company

In the energy starved country of India, GAIL has a 78% market share of natural gas transmission. GAIL operates in all aspects of natural gas value chain – import of natural gas, Exploration, Distribution via pipelines to city grids that are coming up fast across the nation.

It has started to take some steps in the international market too.

Triggers for Growth

1. Urban lifestyle – As Indian urbanizes, end users are bound to move away from the prevalent system of having cooking gas delivered in metallic cylinders when households run out of gas. The “always available” concept of cooking gas in the Indian household is a vast market. Parts of New Delhi, the Indian capital have only had their first brush with piped cooking gas in the last year or two.
Through its nine joint ventures (JVs), GAIL has a presence in more than 12 cities. It plans to expand its network to 45-50 cities in the next 4-5 years. (http://www.moneycontrol.com/news_html_files/news_attachment/2010/GAIL_MOST.pdf)

2. Domestic Gas Finds – The vast gas finds in the Krishna-Godavari basin will mean that India’s energy mix will accommodate this domestic source of energy and hence the companies that lay down new pipelines to distribute the gas across India will have an inbuilt advantage that will be very hard to replicate.
From 2009 through to 20014, India’s gas production is set to treble and GAIL’s transmission volume is expected to double (http://www.moneycontrol.com/news_html_files/news_attachment/2010/GAIL_MOST.pdf)

3. LNG Imports – GAIL is also an equity participant in PetroNet a company that is dedicated to setting up ports in India for the import of LNG to Indian shores (http://www.petronetlng.com/).

Competitive Advantage

1. The Petroleum & Natural Gas Regulatory Board has set a 12% post tax Return on Capital Employed as a key benchmark that locks in a healthy margin.

2. The planned capacity expansion (in terms of length) from 6,624 km to 12,285 km and 154 mmscmd to 279 mmscmd cannot be replicated by a competitor in a few years.

Recommendation

If you are looking for a solid asset in these turbulent times, GAIL represents a good opportunity for the long term investor.
In the short term, GAIL may be required to hand out some money to subsidize the losses of the OMC (Oil Marketing Copanies) but it is not alone as far as that hand out is concerned (http://www.financialexpress.com/news/PM-to-look-into-petro-product-pricing--subsidy-burden-sharing/566663/). A contrarian view on this front might be that one day, the Indian state will be forced to free petroleum pricing and there could be a nice little bump in the share prices of the upstream companies (Including GAIL) to be enjoyed at that time.

GDRs for GAIL trade in London - http://www.lse.co.uk/shareprice.asp?shareprice=GAID&share=gail_(india)_ld_gdr_(repr_6_ord_inr10)(reg_s)

Hardy Oil – A Speculative play in promising geography

2009-11-03T13:17:00.000-08:00

If you are kicking yourself for not picking any stock in the March meltdown of 2009, and are a little bit adventurous, you might just want to take a look at Hardy Oil.

The Pluses

1. Strong Partnership

In India, Hardy is partnered with Reliance Industries Limited, one of India’s largest business firms with interests ranging from upstream energy to grocery stores. Reliance has gained significant experience in the upstream energy space with Niko Resources by bringing the D6 gas find on stream.

2. Strong Geography

The D6 gas find lies very close to acreage of the D9 and D3 blocks that Hardy and Reliance have the right for. Hardy has a 10% interest in both and Reliance holds the rest.

Please see image attached.

Source: http://www.hardyoil.com/Assests/nelpiii/nelpiii_main.htm

3. The Timing

The first well drilled in the D9 acreage ahs turned out to be a dud - http://in.reuters.com/article/businessNews/idINIndia-43388320091023. This has caused the share price to fall.

Decision

Another three wells are to be drilled in D9 - http://www.gulfoilandgas.com/webpro1/MAIN/Mainnews.asp?id=9500

Minuses

This is purely a speculative play and the risks are high. So are the potential rewards.

Hardy Oil trades in the UK markets - http://uk.finance.yahoo.com/q?s=HDY.L

Two Potential Sources for Google’s Next Big Leg up In Revenues

2009-10-19T05:54:00.000-07:00

This article may appear off topic as it does not have to do anything with an India focused investment. However, given my professional background in online marketing, it is an on-topic article and I wanted to share with it with everyone.

Everyone seems to agree that the next step change in Google’s earnings are not likely to come from search marketing. Google has a commanding market share and has made “Googling” a tough habit to break. But there is a limit to the amount of growth that can come from “search marketing”.

I believe that there are two areas of earnings within the online advertising pie that Google could grow reasonably strongly in the near future viz. Display advertising and Classifieds.

After “search marketing”, “display” and “classifieds” form the next big chunks that Google can go after.

Please see image title IMG1 above.

Source: http://www.mediapost.com/publications/index.cfm?fa=Articles.showArticle&art_aid=103113

Display Advertising

So far Yahoo has been the clear market leader in this space. The banner market has been the prerogative of the big brands or cheap guys right at the bottom of the heap out to make a quick buck.

Apart from opening a new ad exchange (http://tech.yahoo.com/news/pcworld/20090918/tc_pcworld/googlegoesafteryahoowithmarketplacefordisplayads), I believe that the introduction of the “View Through Conversions” (http://adwords.blogspot.com/2009/09/announcing-view-through-conversion.html) could make display advertising to the vast numbers of businesses (small and medium) that currently use Google mainly for “search marketing”.

In tough economic times, which are only going go to away, very slowly, this new metric helps measure conversions (users that took an action and were exposed to the banner) better and therefore provide a better handle on a more accurate reporting of Return on Advertising Spend (ROAS).

I tried a display campaign and was amazed at the results using this new metric. I was able to generate/report 10 times the number of people that clicked on the banner and completed a sale as View Through Conversions. There is some controversy on how best to report these conversions. Regardless, the use of View Through Conversions, should create a large opportunity for incremental sales at Google.

It was the ability to measure that created “search marketing” out of thin air a few years ago. If my experience with View Through Conversions is eve somewhat typical of others, Google should see be able to harness a lot of net new advertising dollars to its Content Network, using the View Through Conversion.

Classifieds

Google has made two changes that I think might make it more of a player in this space.

A. Google Product Ads

Within the existing adwords ads, Google is making room for ads which occupy a larger piece of real estate on the screen. These product ads will presumably be shown against shopping oriented queries alone so that the overall Google experience is not disturbed. I suspect that if these ads gain traction, they will likely help raise CPC (Cost Per Click) fees.

Please see image 2 titled IMG2 at the top of the article.

Source: http://www.seroundtable.com/archives/020583.html

B. Google Merchant Centre http://googlebase.blogspot.com/2009/09/introducing-google-merchant-center.html)

Google has recently broken up its Google Base product into two separate products. All users of Google Base (a program to feed products/data to Google) that submit products have now been provided access to the new Google Merchant Centre.

My suspicion is that once the migration is complete, service providers that provide hard goods and soft goods (data or services) could be offered bells and whistles that correspond better to each demographic. In both cases, given Google’s large reach, I would say Google could become a player in the classifieds space with enhancements to both, the existing Google Base for service/data providers and the new Merchant Center for product catalog providers.

I believe that these two potential revenue streams will materialize before any revenues from Android and allied activities materialize for Google.

Opportuity Beckons - Niko Resources

2009-08-06T12:11:00.000-07:00

The Company:

Niko Resources, based in Canada is an independent and frontier exploration company. Like Cairn Energy, my other pick, they typically go into countries and regions that regions that Big Oil has overlooked. They are a pure play in terms of oil and gas exploration as they are not into owning or running gas stations or refineries.

The Assets:

1. Near Term Trigger

The most significant asset that Niko has is its 10% stake in the gas field of D6, in the Krishna Godavari (KG) basin off the east cost of India.
D6 is a global phenomenal gas field by any standards. At its peak production, the D6 KG filed will produce the equivalent of 550,000 barrels of oil a day (that more than half a million barrels a day!!). http://www.arcweb.com/Regions/India/Lists/Posts/Post.aspx?List=5ca2e668-8692-44a9-81cd-147593ce461c&ID=104

With most of the base infrastructure in place and initial gas already being captured, this is a major impetus, both to the country and the company (Reliance Industries & Niko, the 10% partner) http://www.arcweb.com/Regions/India/Lists/Posts/Post.aspx?List=5ca2e668-8692-44a9-81cd-147593ce461c&ID=104

D6 will have knock on downstream benefits for the Indian economy as reported by Goldman Sachs http://www.livemint.com/2009/03/24165730/KG-basin-D6-field-gas-to-lowe.html

2. Exploring outside of D6

Niko is also exploring other blocks in D6 and elsewhere in India, Pakistan, Bangladesh, Indonesia, Kurdistan, Pakistan, Trinidad and Madagascar.
With cash flows that will be flowing from the D6 field soon, Niko will be in a great position to bid for better blocks and undertake better exploration in the acreage that it already has access to.

Risks:

1. The brother on brother dispute in the Reliance Family (owners of the 90% stake of D6).

Apart from the usual risks of delayed production and other technical risks associated with deepwater exploration, there hangs a more serious cloud over the revenues that could accrue courtesy of D6.

90% of D6 is held by Reliance Industries Limited (RIL) controlled by Mukesh Ambani, the elder of the two Ambani brothers. When the two brothers split from each other in 2005, they signed an agreement on how to divvy up the empire that their father legendary Dhirubhai Ambani had created (and the boys had helped grow). Anil Ambani, the younger brother has contended in court that as per a settlement agreement, he has rights to buy a certain amount of gas (28 million cubic metres of gas per day) from the D6 fields at a “friendly” price (50% of the price set by the government). http://www.telegraphindia.com/1090731/jsp/business/story_11304165.jsp

With Anil’s part of Reliance making investment in generating electricity for a country that desperately needs energy, access to low priced gas is a key competitive advantage.

Current Status of the dispute:

A. The dispute now lies before the Supreme Court of India.

B. The government of India has stepped in and wants the gas sold at full price so that its own revenues do not get hit. The governments’ contention is that the natural resources are a national asset and that the folks that discover and sell the resource are just companies that are leasing the land/asset.
http://www.ft.com/cms/s/0/77ca7444-74c4-11de-8ad5-00144feabdc0.html

2. The low price of the gas versus international price

The gas from D6 is not sold as per free market prices but at prices set by the state. At a set price of USD 4.2 mm/BTU, the will of the state may be tested if natural gas prices move up globally. What happens if and when the global prices of natural gas shoots up? I dont know.

Keeping in mind that India has yet to attract “Big Oil” to explore, it is hard to imagine that the state will be able play the role of a paternalistic parent in perpetuity. India’s energy needs require a few more D6 kind of discoveries and global players are required to generate competition and accelerate the pace of exploration. An awakened India cannot allow the discovery of additional deposits to be put off.

There have been other less significant discoveries adjacent to the D6 already - http://www.business-standard.com/india/news/reliance-strikes-oil-in-kg-basin/229691/

Valuation:

Niko states that once D6 hits the targeted 2800 MMcf/day target which is expected before calendar year end 2009, shareholders can look forward to $ 10 as cash flow from operations. http://www.nikoresources.com/nikopr.htm

I am making an assumption or a leap of faith, that much of $10 will flow directly to the bottom line in the hope that interest and taxes will be met by some income from the non D6 fields. If some one has additional information on this, please share it with the readers using the comment form at the end of the article.

In the worst case scenario of a quarter of the production of the natural gas from D6 has to go to Anil Ambani’s group, it will be interesting to see if it is taken out solely from the 90% that Reliance Industries owns (as should be the case and Niko’s stake should not be impacted). Niko after all was not party to the family agreement between the Ambani brothers.

With an expect field life of 11 years (http://in.biz.yahoo.com/090402/50/bateb6.html), an investor may pay upto 5 times of these earnings on a conservative basis for an independent oil exploration company (http://biz.yahoo.com/ic/123.html 9.1 PE for Independent Oil & Gas producers).

That establishes a base of $ 50 for the Niko stock and throws in all the other exploration assets and potential at zero cost.

How to best play Niko India?

Niko Resources trades on the Toronto Stock Exchange (http://ca.finance.yahoo.com/q?s=nko.to). At $ 80 the stock may feel expensive given $ 50 as a base price, but please note that the independent oil and gas companies trade at 9 times earnings. I have chosen to go with 5 as an extreme caution.

Long investors are expecting the cash register to ring soon as we are not far from the moment when Niko will begin to lock half a billion dollars in sale every quarter. http://www.nikoresources.com/nikopr.htm

Recommendation:

You may choose to wait before buying Niko at your own risk. If there is a weakness between now and end 2009, definitely load up on this stock and wait till the cash flows start rolling in. I don’t think a long term investor will be disappointed.

You will also find that Joseph Schacter on April 6, appearing on BNN (Business News Network in Canada) has Niko as a top pick (he has had this in his radar for a long time) http://www.bnn.ca/marketcall.aspx

The Case For Cairn

2009-07-22T06:20:00.000-07:00

The Company:

Cairn Energy, based in Scotland is an independent and frontier exploration company. They typically go into countries and regions that regions that Big Oil has overlooked. They are a pure play in terms of oil and gas exploration as they are not into owning or running gas stations or refineries.

Cairn Energy has two distinct subsidiaries:

A. Cairn India and

B. Capricorn Energy

The Assets:

1. Near Term Trigger

The most significant asset that Cairn India has is the oilfields in Rajasthan India. The oilfields of Mangala, Aishwariya, Saraswati and Raageshwari in Rajasthan have an estimated 3.7 billion barrels of oil. Cairn owns 70% of these oil fields (ONGC, one of the Indian national petroleum companies owns the other 30% and not all the oil is extractable).

Cairn expects to start production at 30,000 barrels a day in the second half of this year and ramping it up to a peak production of 125,000 barrels a day by 2011. The 125,000 barrels per day is expected from the MBA fields (Mangala, Bhagyam and Aishwarya). These figures do not take into account any other oil finds that Cairn may find and exploit elsewhere in India.

2. Exploring outside of Rajasthan

A. Sri Lanka – In the Sri Lankan waters close the Krishna Godavari basin (where India has discovered its biggest gas find ever), Cairn has rights to explore hydrocarbons in a 1,500 square km. Cairn India owns 100% of this field.

B. North India – The Ganga Valley sedimentary basin is one of the most under explored basins in India. Cairn India owns 50% of the rights to explore acreage in Uttar Pradesh and Bihar.

C. Eastern India – Cairn’s focus in the East is based on the Ravaa oilfield in the KG basin (Krishna Godavri basin). In partnership with 2 other companies, Cairn India is producing 50,000 barrels a day from this field and can process 70,000 barrels per day, 95 mmscfd of natural gas and 110,000 barrels per day of injection water.

D. Western India – In partnership with 2 other firms, Cairn has been producing gas from the Lakshmi gas fields in the Cambay basin.

E. Greenland – Cairn is exploring 3 different basins in Greenland that are suited to oil and gas deposits with a total of 72,000 sq km under license for exploration.

F. Mediterranean – Cairn is also bidding and exploring for oil in Tunisia, Spain & Albania.

G. Capricorn – All of the non Indian assets that Cairn Energy holds are owned via a subsidiary called Capricon Energy. Capricorn Energy Limited (“Capricorn”), a subsidiary of Cairn is the exploration focused arm. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Peru, UK (West of Shetlands), Albania, Australia, and pending licence awards in Spain and Sicily.
Cairn Energy holds 90% of Capricorn, an unlisted subsidiary.

Risks:

1. Oil prices fall and stay there for a while

My perspective is that even if this happens, usage of petroleum in India will continue to remain strong. At the end of the day, we are talking about a commodity that is depleting and that we will eventually run out of. Sooner or later prices will go back up and stay there.

2. Taxation

The state of Rajasthan goes back on its word and decides to tax Cairn heavily for the oil it draws out of the ground. The Chief Minister has already hinted at raising taxes on Cairn and others.

Again, if this does happen, Cairn has shown in the past that is not afraid of going to court and fighting for its rights. The federal government in India understands that after many years, the oil majors are slowly looking to India for exploration. With a Congress government both in Rajasthan and the Centre (federal level), I think it is unlikely that the Rajasthan government will tax Cairn to death.

3. Low quality Oil

When the GOI (Government of India) forced the state owned oil companies to firm up buying of the waxy crude that is produced by Cairn India, there was confusion about pricing the crude given its high viscosity.
However, those concerns have been laid to rest and Cairn has now signed deals that ensure that the crude will be sold and they have ready customers - http://www.thehindubusinessline.com/2009/07/20/stories/2009072051570100.htm

4. No additional oil is found

Usually where some oil is found, there are chances of finding some more oil. But investors should consider the possibility that despite promising seismic surveys and geology, Cairn may not find any major discoveries in its other explorations.

Valuation:

Here is how I have valued the MBA fields, Cairn India’s most promising asset.

Please click on the graphic at the top of this post to expand and view the excel table. I have yet to figure out how to paste tables from Word or Excel into blogger.

At $ 40 a barrel, Cairn India has an enterprise value of $ 10.5 billion.

A. Reserves have been taken at a conservative 500 million recoverable barrels versus the company aiming for 685 million - http://www.livemint.com/2008/03/31142600/Cairn-India-raises-projection.html

B. Average net margins have been taken at a conservative 15% compared to the 40% plus in the valuation done by IndiaBulls - http://www.business-standard.com/pdf/tu953%20cairn%20india%20090701.pdf

C. Assumed a conservative PE ratio of 5 for Cairn. Comparatives can be viewed at http://biz.yahoo.com/ic/123.html (9.1 PE for Independent Oil & Gas producers)

D. Current price on July 21, 2009 is Rs 245 or - http://www.business-standard.com/stockpage/stock_details.php?bs_code=11204 and http://in.finance.yahoo.com/currency/convert?from=USD&to=INR&amt=1&t=1y
How to best play Cairn India?
Cairn Energy, the parent company trades in the UK markets and owns 69.5% of Cairn India. To follow stock movements of Cairn Energy, used this http://uk.finance.yahoo.com/q?s=CNE.L

Recommendation:

At a conservative $ 40 a barrel, Cairn India has an enterprise value of $ 10.5 billion. The market cap of the company on the Indian markets is at USD 9.3 billion and too far off from the $ 10.5 billion I have calculated/estimated.

Cairn Energy stock on the UK markets has a market cap of 3.32 billion sterling. At an exchange rate of 1 sterling being 1.64 USD, that translates into a market cap of USD 5.45 billion. Theoretically speaking the 69% of Cairn India should translate into USD 7.3 billion.

In light of the above, I would propose that at current prices Cairn Energy stock represents an opportunity to buy into the MBA fields at a discount and get exposure to all of the other exploration that Cairn Energy has lined up at zero cost.
If you wish to buy Cairn and wait till 2011/2012 (my suggested hold period), I would suggest buying it on the UK markets.

Investment Theme 1

2009-07-16T08:24:00.000-07:00

Source: http://www.climate-policy-map.econsense.de/factsheets_download/factsheet-energy-efficiency.pdf

If a picture is worth a thousand words, then the graph above should clearly shows huge $$ signs. All the 3 major BRIC nations are at the bottom of the heap in terms of per capita consumption of "Primary Energy".

Imagine a life without gasoline, electricity and all that these vital inputs provide and help produce.

In terms of power plants, transmission grids, electrical transformers etc, clearly there remains a massive amount of money and investment that will be required. But in the case of India, I believe that primary hydrocarbon exploration represents a major multi-billion opportunity.

Allow me to list my reasons:

1. Under Explored Terrain - India is an under-explored country (seismically speaking). It is only recently that overseas companies have been allowed to explore for oil and gas. Google the phrase "NELP exploration policy" and see what you find. India's hydrocarbon czars have some what awakended from their slumber and are reacting to what is a strategic shortage and choke point.

2. Geology - Geologically the prospect seem good with oil discoveries having been made in Rajasthan in recent years and massive gas deposits having been found off the Eastern coast in India.

A map of all the major basins can be viewed at http://www.iypeinsa.org/updates-09/art-45.pdf (looks like a 2004 document)

3. Captive Market – India imports something like 75% of its crude requirement. With the rising middle class and the ambition/dream of every family owning an automobile or two, India is a long way away from suffering from a glut of crude oil and gas.

Source: http://timesofindia.indiatimes.com/Business/India-Business/Inflation-to-average-5-in-FY10-Assocham/articleshow/4725571.cms

With most purchases of electricity being done by bankrupt State Electricity Boards, for now, I believe the singular theme as far as a energy is concerned should be E&P (Exploration & Production) plays with an India focus.

Investing Philosophy

2009-07-16T06:52:00.000-07:00

I am a regular guy just like who. Perhaps like you I have lost 40% of what I invested in the market meltdown of 2008 and 2009.

But I have also made significant profits on stocks that I bought and held as a 20 something old in India. I am thankful to my father for teaching the values of frugality and clear thinking on what to buy and why.

After the recent carnage, surely every one realizes that investing for the long terms, the next 5 to 10 year horizon, can only be done by investing in the developing countries. Any one read or heard about the concept of Marketing to Bottom of the Pyramid. Those familiar with the web economy, think of micro-payments applied at a massive scale. That is what the developing nations represent.

When it comes to developing nations, India is probably the country that I know best having lived and grown up there and having a connection to that society.

Since I live outside of India, I will try and list stocks that overseas residents can buy.

I will not be suggesting prices you buy stocks at but will list stocks that I believe will strongly rise over the long term (5+ years).

I have deliberately titled the blog "Investing With India" as I believe that is the best way to make money. As India invests in her own future, being a participant in that process will yield, good, solid and yes, stable returns.

Happy reading

Harmit Singh Kamboe