I wish I knew where I am going to die, and then I'd never go there

Things you should know before reading and remember after reading

  I already own share

Human beings are rationalizing than rational . may be  I am trying to justify my current ownership

Man with a hammer

I have been reading up about value investing and stock markets for some time now. So maybe I am a man with a hammer for whom everything looks like a nail.

  Novice
I don’t have any stock market investing experience. Buying share is an exercise in arrogance. You say that your judgments is superior than others . When I combine this with that of my lack of experience it can produce truly horrible .

Authority influence

I quote several respected investors. While my objective is vicarious learning - beware it might influence you.
 JK Bank Comments

  Strengths/Moats

1. Niche geographic presence. Enjoys virtual monopoly in J&K . Which ensures stable depositor base. “consumer based, small business type huge deposit base”
 

2. Unique characteristics of J&K ensures low cost of deposits without significant float from cash management, settlement income etc

•  Government business completely done by J&K Bank >> Large float 
• Muslim dominated customer population – aversion to interest 

 3. Low operating costs - best in class for a decade 

 Cost to income is basically the amount of operational expense per rupee of income. Hence lower the better. Management hope to maintain the trend even after the wage hike (already reflecting in financials and new CSR provision) To really appreciate the strength of this See below the comparable cost to income ratio

 4. Management - I think not really able to manage analysts

•  not really getting the questions, really not very polished, casual way of talking ( CEO calls the analyst my friend etc !) but seems to be very hands on operation focused. 
•  Management has grown within the bank
•  Focused on shareholder ( or the need to please government – largest shareholder ?
  JK Bank to sacrifice profit to maintain dividend
• But going by the NPA numbers reported and all through so called consortium lending ( loosing :) ) arrangement looks like they have got in to bad company. And the share price now adjusted to this - “A man is known by the company he keeps”.
•  To quote Buffett : “ mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate 

5. Mohnish is invested

• He is a good spokesman apart from the credentials as a value investor ( if you doubt see this  youtube link - watch from 1:43:50). 
•  He uses check lists extensively and never invests if it is at least a 2x 
• You can buy now 20% discount to what he paid ( Anchoring bias !)
•  Just to balance this please see the comment by Sanjay. 

•  Also keep in mind that Prof is not a fan of banking stocks : 

 Anyways to quote Buffett “Public opinion poll is not substitute for thought….Derive no comfort from intelligent people, vocal people or majority of people …..if we are in a situation that we can understand, facts are ascertainable and clear >> we are progressing in a conservative way” ) 

6.  Valuation 

Please see below the P&L in INR crores

•  At present levels ( 4600 crores; 95 a share) the bank is available at
•  a. Less than Four times after tax and around 2.7 times pre-tax earnings based on Fy 2014 earning. 
• b. Less than Six times pre-tax earnings and around 9 times after tax earnings based on a current run rate FY 2015 earning. This assumes a bad debt provision of 670 croes for the financial year. Which means that assuming no growth and provision of 500 crore for bad debt every year- investment will be cash flow neutral every year.
•  Bank had excellent return on equity in the past and good compounder = logically eligible for higher valuation 

• If you want to see more optimistic valuation scenario you can hear how Mohnish is looking at this investment.
•  JK bank hold 102.2 million shares in Metlife which the CEO expects to fetch at least RS 80 a share. Even if we discount the valuation optimism by 60% – it will completely offset the bad debts booked in FY 2015. Earlier they did a partial stake sale to Metlife – now it would be much easier due to FDI investment limit enhancement.

7.  Bad Debt Scenario 

“The first chance you have, to avoid a loss from a foolish loan is by refusing to make it; there is no second chance – Munger” 

There is no doubt they are in a deep mess as of now. Floods, High level corporate debt default and allegations about book fudging. So they already missed their first chance very terribly. 

Now only thing that is worth considering is “Bad Debt Related Issues are One Foot hurdles they could step over ? “We don't leap seven-foot fences. Instead, we look for one-foot fences with big rewards on the other side. So we've succeeded by making the world easy for ourselves, not by solving hard problems- Munger”

 I think the odds are in favor of management in climbing this NPA mess 

• They have handled this monster in the past – FY 97 had 6% NPA 

•  Management commitment that corporate lending will be restricted to Govt of India and good corporates 
• I am not able to see any fundamental changes in the risk management and culture of the bank - Except misjudgment and bad company with other inefficient PSU banks through consortium loosing arrangement.
• Given the best cost to income ratio – management has tremendous room to manage this mess
•  All competitive advantages remain unaffected – management energy can be focused on arresting NPA.

Rat, Cat and Strategic Consultnts

R

at is faced with a threat. The threat is to his existence on this earth. His life is at risk as long as Cat is there on the face of this earth. Those of you who laid your hands on history text book will recollect that, last time Rat tried to manage the threat by belling the Cat. So this time it decided to eliminate the threat rather than trying to manage it.

RAT convened a meeting of its security council. They were unanimous on the opinion that this kind of strategic decision should be left to experts. So Cat appointed M/S. X Management Consultants (Real name is not revealed).

The amount of information they required was less only to the fees they charged. They took a whole month to come out with a three page strategic document which evaluated the strategies to overcome the fatal threat paused by Cat. After carefully evaluating various strategies M/S. X consultants suggested that Rat has to become Lion. According to them Lion is the King of Jungle. His authority in the Forest is unquestioned. So the best option is to become a Lion.


Rat was little skeptical about the practicality of the idea. But the experts in his Security Council where of the opinion that X consultants cannot be wrong as their report is a result of all managerial wisdom M/S X Consultants had acquired from B Schools and enriched through out their consulting career. Moreover where there is a will there is a way. Rat should become Lion, at any cost.

Rat wrote to X consultants asking them to provide how to become Lion. Rat got a prompt reply:

Dear Sir

We are happy that we had the chance to present a strategic road map to overcome the threats posed to you by Lion. We have recommended that you should become a Lion. This is a result of careful examination of all facts and figures examined and discussed by us.

But we feel that ‘how to become a Lion?’ is something very internal and specific to you. Moreover it does not lie in our area of expertise. So we request you to find out How to become a Lion. We wish you all the very best in your endeavors to become a Lion.

Assuring you the best of our consulting always

With Regards

Mr.X
Senior Principal Specialist Consultant
Strategic Consulting and Fatal Threat Elimination Wing
M/S. X Consultants

Dedicated

This post is dedicated to
1. Prof. S.P. Sreenivasan from whom I got the crux of this story
2. Following Strategic papers I studied at XIME:
a. Strategic Financial Management
b. Strategic Cost Management and
c. Strategic Business Management
3. All IT and HR consultants from my batch of XIME
4. To him for lying that I write well. 

MBA

MBA

I know for majority of the people it mean Masters Degree in Business Administration. Those three words after your name can do wonders for you. Lot of challenges and responsibilities at a very young age, a fat pay cheque, a nice girl and above all a life which is more than equal to many others.

But I have found these interesting expansions of MBA:

Mediocre But Arrogant

This is the name of a book written by an alumnus of XLRI. The book is about the life in an imaginary business school named MIJ-Management Institute of Jamshedpur.


Much Below Average

I first heard this from my Finance professor at XIME. He was driving the point that MBAs should think that they are much below average, which, according to him, will prevent organizations from being affected by managerial hubris.

My Boss Always right

This is an attitude of employees which can ruin organizations. Boss may be hearing only what he wants to hear while missing out what he should hear. I think all the employers should be able to recruit smart people who can cleverly sandwich disagreements among agreements to their bosses so that the boss is getting the right picture and making the right decision.

Master of Beer Administration

It is T shirt slogan. If I consider some of my batch mates, I think the expansion is justified but the word Beer should be substituted with Booze.

My Big Attitude

Attitude is everything; it can make or mar persons and institutions. I think organizations should have people with right attitude

For you my dear Friend

“Friendship marks life even more deeply than love. Love risks degenerating in to obsession, friendship is never anything but sharing”.

Until I read the Happy Friendship Day SMS from my mobile service provider I din't realize that today is Friendship Day. Though personally I don’t find anything special and great in celebrating a friendship day; lot of faces flashed through my mind. I I owe a lot to them.

I owe a lot to him:

For running after my cycle to teach my cycling and to pick me up each time I fell down. My friend I have studied so many things after that. But nobody struggled as much as you did to teach me cycling. Believe me even my Finance professor had a better time teaching me how to formulate hedging strategies for foreign currency exposure.

I owe a lot to him:

For helping me to laugh of my pain even when I was feeling that I will breaking in to million pieces.

I owe a lot to him:

For lending me his bike and for taking the even more great risk of being my pillion when I am trying to figure out why should I always kick something called gear in opposite directions depending up on whether I want to reduce or increase my speed? I owe you a lot to him For explaining and showing that it is necessary to (1) reduce acceleration; (2)apply brake and clutch simultaneously , (3) change gear and turn on the indicator, each time I wanted take a turn. I respect you even more importantly for showing me that it can be done with two hands and two legs of a single person.

I owe a lot to him:


For taking me to the pond and letting me know that water also has a taste in the process of teaching me swimming. I can still recollect the 'kissing the death feeling' I had when you threw me to the pond where water was above my head. You taught me where there is no other way out; I will find the right way. When I went to business school my professor told me that a smooth sea never builds a skillful mariner. My friend I wanted to tell him that I have learned it from you.

I owe you a lot:

for patiently listening to all that I blabbered when I went high for the first time. I am running out of words to describe what you had in mind when you waited whole night next to my bed with a bucket fearing that I will puke. I can’t even imagine what you had in your mind when in spite of all these I vomited on the floor. I owe you a lot for teaching me how to carry myself well even when I am tipsy.


I owe you a lot

For tolerating all my idiosyncrasies. I still remember how you helped me to analyze that girl and teaching me what are the components of analysis. Let me tell you that the ‘pre merger analysis of strategic financial position’ I learned in my MBA is nothing before it. I admire the simplicity with which you taught me and your ability to create curiosity in me.

I owe you a lot

For the pain you have taken to wake me up in the morning to go to the gym. I can’t forget how difficult it was for you to pull me up when I can’t push me up after my sixth push-up. I respect you for perfectly agreeing with me to stop going to gym after one month when we realized that it will take months to have that shape.

I owe you a lot

For teaching me how a gentleman should behave. I admire your ability to demand chivalry in a feminine way. You taught me to keep limits; you taught me to respect opposite sex and it was you who taught me to be assertive without being aggressive.

I owe you a lot

For teaching me what persistence is and for showing me the real meaning of resilience. You showed me attitude will determine my altitude and not aptitude.

My friend I owe you a lot

for believing in myself even when I stopped believing in me. When you conveyed that you still believe in me; the impact of it was more than a million motivational speeches. I respect you for your ability to sit beside me when I am totally down and boost up my spirit even without talking anything to me – I will call this as magic.

My friend, a zillion thanks to you for making this earth a beautiful place for me to live in.

I want to take Revenge

Earlier I have decided that I will forgive but I will not forget. But this I can’t forget or forgive. I failed in an exam day before yesterday. May be the first exam failure in my life. It was a certification test in Basics of Datawarehousing. In the online exam everything was Greek and Latin to me.

Two days I was contemplating strategies for taking revenge. Finally I have zeroed in on this: make him (that *** who set the paper) study and take a test on risk management using derivatives. I will ask him various hedging strategies and how to hedge a foreign currency exposure when you are facing an interest rate risk also etc..

Company bus

Journey in the company bus is very boring. Nobody will talk everybody will keep their lips tightly closed. You will feel that everyone is sad to leave the company but that will be immediately ruled out when you think of the speed with which they enter the bus. If you ask anyone anything they will give you monosyllabic answers which will wipe out the urge to ask next question. So I tried sleeping for few days, but it is impossibility as I am traveling through Hosur Road. But I am trying hard to develop the skill of sleeping immediately after getting in to the bus and waking up just before getting down.

I know I will develop this skill as practice makes one perfect (thanks to my high school English teacher who taught me to elaborate this proverb for exams) and impossible is nothing (thanks Adidas).

Happy B’day Messi and a Belated Gift

I am writing this just after witnessing the deserving victory of Argentina over Mexico. Critics’ often say that god and luck left Argentina after the Hand of God goal in 1986. They are right if we examine the world cup history of Argentina post 1986. But so far in this world cup they have done a job worth their pedigree.

It was Messy’s B’day yesterday, (June 24). This victory would be a suiting B’day gift to him on his nineteenth birthday. Happy birthday Messi ; it’s a delight watching you playing.