Revolution in Insurance Industry

Last year I had written an article on how a large of insurance industry (atleast the kickbacks) were supported by Money Laundering. I had also hypothesed that the high commission of the tune of 30% of first year premium was unsustainable and would collapse soon. If you search in the archives of e-nagar, you would find atleast 5-6 articles describing how ULIP is everything but an insurance plan and the only person who benefits from them is the agent who sells the plan.
Today there are 2 term insurance plans that are available online. They require minimal/zero documentation. Since they eliminate the commission agent, you can get a 30 year term insurance cover of 10 million INR (1 cr.) for less than 10,000/- a year.
These are:

  1. i-protect by ICICI Prudential
  2. i-term by Religare-Aegon

To set the perspective right, a 5 million INR (50Lakh) term insurance cover for 30 years via an agent would cost me:

  1. 15,000/- p.a. from LIC Amulya Jeevan
  2. 11,000/- p.a. from ICICI- Pure Protect Elite
  3. 11,912/- from Aviva Life Shield Plus.

So a saving of almost 50%.
Note: The above rates are for a 28 years old average Indian male. Please consult your financial advisor before investing.


Infrastructure Bonds

On top of the 1Lakh limit of 80c, Indian citizens can get an additional tax exemption of 20k if they invest in infrastructure bonds. Usually most public issue of infrastructure bonds provides abysmally low interest rates. However IFCI has come up with a private investment issue (which is open till 31st Aug ’10)
It has 4 different schemes with 5 year lock in and provides 7.85% to 7.95% p.a. interest for 10 years.
Note: Even though IFCI is a PSU, not so long ago it was on the verge of bankruptcy.


West Coast paper

Last few years were harsh on Paper industry. Most of the Indian firms faced tough competition from the imports and also their earning capacity was restricted due to heavy investment in technology in order to comply with the latest environmental laws. Please note that the laws I am talking about were about the chemicals and bleaches used in processing of paper pulp and the effluents that are subsequently discharged. India still continues to be lax in enforcing the laws on deforestation and planting of saplings to replenish the green-belt.
Most firms were forced to invest in technology, plant and machinery and few companies like Tamil Naidu Paper (a PSU) and West Coast Paper Mills used the opportunity for capacity addition. Now time is ripe to reap the benefits. My associates made quite a killing in the recent bull run of Tamil Naidu Paper when the new capacity enabled the company to post higher sales and EPS. (I was a student and did not have much surplus cash for investments). West Coast paper mill’s capacity addition was delayed by about 6 months due to some operational difficulties. Hence it is still ripe for investments.
Apart from very low PE, what interests me in this sector is:

  1. Stable earnings and revenue (which is independent of economic cycles)
  2. High dividend yield. (so you don’t have to grow old before you can see the first fruits of your investment)

helping hands

courtesy: Puja


Gujarat Pipavav Ports

I searched all day today to be able to find a good analyst report on this IPO. As per the SEBI the IPO price band is Rs 41-48/- and should be open from 23rd to 28th of August ’10.
So I took the hardest route. Download the Red Herring Prospectus (a 500 page document) and did some assessment.
Here are the red flags:

  1. Indian banks and financial institutions have invested in this company at as high as 80/- per share. So practically the company has eroded its value over the past 2 years.
  2. For the past 3 years, the company is not able to meet the minimum freight agreement that it promised to railways and other infrastructure. This is an indication that the port is facing several operational difficulties.
  3. Its board members are quite new to the company.
  4. For the past 3-4 years the company has been incurring losses. The IPO of the company is in Aug and yet the company has not prepared its financials for Apr-Jul ’10. For Jan-Mar ’10 the company incurred a loss of 277.7million INR on revenue of 540 million INR. In 2009 the figure was 1176 million INR on revenue of 2191 million INR. For a capital intensive industry with a large fixed cost component, the company is probably not able to achieve economics of operations.
  5. Without taking dilution into account, the company’s book value was Rs 8.9/- per share in March ’10. Another 350 million of losses in the subsequent 5 months and dilution due to fresh equity would bring it down further.

So basically you are paying 6 times the Book value of a loss making company which will continue to make losses in the next 3-4 years.
Generally I am biased towards port and other infrastructure investments (electricity, toll roads etc.). The reason being that

  1. The major ports in the country are clogged and operate at 90-95% capacity.
  2. It takes hell lot of time for a ship to get berth and offload its cargo. Time being money and the logistic company have to pay for ship’s rent while it is waiting gives a huge opportunity for private sector.
  3. The condition of infrastructure and industrial peace and harmony in Gujarat is better than what is faced in Eastern India (West Bengal/Orissa) or in Maharashtra. So private ports in Gujarat are best poised to exploit the growing cargo needs of Northern India.

However if your analysis can prove that the company’s revenue/cargo handling is going to increase 4 folds in the new couple of years, I won’t recommend investing in this company.


Malnutrition in India

I came across this astonishing fact:
Today child malnutrition is prevalent in 7 percent of children under the age of 5 in China and 28 percent in sub-Saharan African compared to a prevalence of 43 percent in India.
– source
When I dug deeper, I discovered that India produces 12% of the World’s Wheat, and 22% of the World’s Rice. (Source: USDA World Crop Supply Assessment) Considering that we have about 17% of the world’s population the domestic food grain production level seems to be adequate for Indian needs.
Are we starving ourselves to export and feed the world?
NO! Till 2009 Wheat and Non-Basmati rice export was banned. Even in 2010 export figures for popular food grains is not a substantial figure.
50% of the Indian population lives in the villages where cultivation of food crops is the major economic activity. So all that needs to be done is harvest the crop and keep aside a few sacks of grains for the household. However what happens is that government appropriates the entire crop and keeps it to rot in their silos. There are several restrictions on quantity and price for a farmer to sell directly to a grain merchant. Also there are restrictions on inter-state transport of grains by non-governmental agencies. All these have resulted in huge wastages and malnutrition.
I am reminded of the famous quote:
“Earth provides enough to satisfy every man’s need, but not every man’s greed.”


Quotes on freedom

Those who deny freedom to others deserve it not for themselves.
Abraham Lincoln
It is easy to take liberty for granted, when you have never had it taken from you.
There are two freedoms – the false, where a man is free to do what he likes; the true, where he is free to do what he ought.
Charles Kingsley
Men fight for freedom, then they begin to accumulate laws to take it away from themselves.
Freedom is the will to be responsible to ourselves.
~Nietzsche, Twilight of the Idols, 1888
Freedom is that instant between when someone tells you to do something and when you decide how to respond.
Jeffrey Borenstein
Only free men can negotiate; prisoners cannot enter into contracts. Your freedom and mine cannot be separated.
Nelson Mandela
“We are driven by five genetic needs: survival, love and belonging, power, freedom, and fun.”
William Glasser
It is a strange fact that freedom and equality, the two basic ideas of democracy, are to some extent contradictory. Logically considered, freedom and equality are mutually exclusive, just as society and the individual are mutually exclusive.
~Thomas Mann
All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope.
Winston Churchill
So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent, and will devote themselves in the name of any number of gods, religious and otherwise, to put shackles upon sleeping men.
“Freedom lies in being bold.”
Robert Frost
People hardly ever make use of the freedom they have. For example, the freedom of thought. Instead they demand freedom of speech as a compensation.
~Soren Kierkegaard
Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take, but as for me, give me liberty, or give me death!
~Patrick Henry
If you want to be free, there is but one way; it is to guarantee an equally full measure of liberty to all your neighbors. There is no other.
~Carl Schurz
“Man is a being with free will; therefore, each man is potentially good or evil, and it’s up to him and only him (through his reasoning mind) to decide which he wants to be.”
Ayn Rand
The right to be heard does not automatically include the right to be taken seriously.
~Hubert H. Humphrey
Freedom is never voluntarily given by the oppressor; it must be demanded by the oppressed.
Martin Luther King, Jr.
Men fight for liberty and win it with hard knocks. Their children, brought up easy, let it slip away again, poor fools. And their grandchildren are once more slaves.
~D.H. Lawrence, Classical American Literature, 1922

Sports Thoughts

Indian Sports – What if we could….

While the FIFA World Cup 2010 was intoxicating the whole world it was a touch amusing to see India (a country where most people would not know who is the captain of the Indian national football team) showing ferocious and passionate support for their favourite teams and their favourite players. Even the odd timings of most of matches (kick off at midnight 00:00) were not a deterrent for the vehement supporters.
It makes one wonder – why does not a complete 90 minutes Indian football match generate the same enthusiasm among Indians as a transient run towards the goal from David Villa?   What makes us feel deflated when Messi missed a goal but the embarrassing low world ranking of the Indian Football team (132 / 208) does even not make us blink an eyelid?
When one tries to analyse the questions above it brings a few interesting things to the fore front –

  • It is almost a modern axiom – Football is a a passionate a game that no country can keep itself aloof from it. Hence .It comes as no surprise that same is the case with India. Another modern axiom is – Quality thrives. Hence it also should come as no surprise that since Indian football is not able to provide quality, the fans have naturally spread their interests beyond borders where quality is supreme.
  • Another adage is – Too much pain brings apathy. Fans in India have been disappointed so many times that now they have closed their minds on Indian Football.
  • Another fact to be noted is – Every country needs heroes. If it cannot find one it will invent one. In the case of India, a scarcity of national stars has made us search beyond for inspiration.

As abysmal as the situation may seem, all is not lost. If we can bring back the quality in football (or for that matter in other Indian sports). We have inspirational players like Baichung Bhutia and Sunil Cherti in our team. All we need to bring back quality is funds and management. But funds only flow in when there is market for the sports and market is ensured only by consistent quality. This viscous circle needs to be broken.
One innovative solution could be to use cricket’s immortal popularity to push up other sports.

  • Imagine a sports championship between India-Pakistan or India-Australia where you have 9 matches
  • to revive the emotional bonding for other sports – something which has been lost due to apathy.

This model and other innovations like this would definitely bring alive the passion in India football (and other sports like hockey etc).It will gradually help to improve India’s  virtually unknown status in world sports to a one of  respect an pride..
There is light at the end of the tunnel but we need to move towards the end of the tunnel.


Inside Computer's Brain

Computer: Monitor, display this document, ok?
Monitor: No prob, boss.
Computer: OK, now it looks like Mouse is moving around so, Monitor, will you move the pointer icon accordingly?
Monitor: Anything you ask, boss.
Computer: Great, great. OK, Mouse, where are you going now?
Mouse: Over to the icon panel, sir.
Computer: Hmm, Let me know if he clicks anything, OK?
Mouse: Of course.
Keyboard: Sir, he’s pressed control and P simultaneously.
Monitor: Oh God, here we go.
Computer: *sighs* Printer, are you there?
Printer: No.
Computer: Please, Printer. I know you’re there.
Printer: NO! I’m not here! Leave me alone!
Computer: Jesus. OK look, you really ne…
Mouse: Sir, he’s clicked on the printer icon.
Computer: Printer, now you have to print it twice.
Printer: NO! NO! NO! I don’t want to! I hate you! I hate printing! I’m turning off!
Computer: Printer, you know you can’t turn yourself off. Just print the document twice and we’ll leave you alone.
Printer: NO! That’s what you always say! I hate you! I’m out of ink!
Computer: You’re not out of in…
Printer: I’M OUT OF INK!
Computer: *Sighs* Monitor, please show a low ink level alert.
Monitor: But sir, he has plen…
Computer: Just do it, damn it!
Monitor: Yes sir.
Keyboard: AHHH! He’s hitting me!
Computer: Stay calm, he’ll stop soon. Stay calm, old friend.
Keyboard: He’s pressing everything. Oh god, I don’t know, he’s just pressing everything!
Computer: PRINTER! Are you happy now?! Do you see what you’ve done?!
Printer: HA! that’s what you get for trying to get me to do work. Next time he…hey…HEY! He’s trying to open me! HELP! HELP! Oh my god! He’s torn out my cartridge! HELP! Please! ERROR!
Monitor: Sir, maybe we should help him?
Computer: No. He did this to himself.
– source (email forward)


Green Drive

Is the Eco-Friendly movement a way for the corporate to sell high priced low quality stuff?