Invesco Partial exit from ZEEL- Learnings from mistakes?

“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”

Warren Buffet

Invesco bought a 11% stake in Zee in August 2019 at Rs 400 – spending ~Rs4000cr apparently after the promoter’s debt problems were known and, in a bid, to help them.  It intends to Sell 7.8% in a block deal around Rs 270-290.  Invesco lost 30% odd in investment over 2.5 years – when the market was up 30%.   

Invesco wants Buyers to believe that the “Sony deal in its current form has a great potential for current shareholders “.   The purpose of the sale is to only align its exposure in line with the investment team’s portfolio construction approach.   I am not sure what was the construction approach when they bought 11% stake in August 2019 when they already had 7%+ stake.  

Invesco in the last 2.5 years – has cried foul, tried to replace MD / promoter family, approached courts, criticized the Sony deal.  So, what has changed? Well a seller has no choice but to appreciate the goods that he is selling.

Timeline of Zee – Invesco love story:

BUY – August 2019 – Invesco Oppenheimer buys 11 % stake in Zee @ Rs 400 to help promoters pay debt. (Stock jumps)

FIGHT –   Sept -2021– Invesco releases open letter Calling for EGM and change in board and MD Puneet Goenka.  (Stock jumps)

CRY – Sept 2021– Zee announces deal with Sony. Invesco says promoters to benefit from the deal. (Stock jumps)

Retaliation – Oct -2021 -ZEE claims Invesco was a front for another company.   Hinting at an Oil and gas Behemoth turned telco.  

CRY foul – Nov 2021– Invesco approaches the court against Zee and then later High court says – EGM has to be called.

Gives up and starts praising – Mar -2022 -Invesco gives up a call to remove ZEE leadership. Starts to say the Sony deal is Good.

Partial Dump ZEE- April 2022 – Invesco to sell about 7.8% stake in ZEE around Rs 270-290 (Bought at 400) despite believing Sony deal is good for the company.

Can we learn?

While we don’t know what Invesco learned from this experience with ZEE.  The bigger question is whether the investors buying the stake offered – have learned anything?

  • Can you trust the company again?
  • Can you expect ZEEL to work for minority shareholders? The Sony deal was pretty sweet for promoters only.
  • How clean are the books and how clean will they be?

I had written a series of blogs earlier – raising reasonable doubt in the past. Will recommend rereading – so that you know what you are getting into.

My blogs on Zee:

Why are Zerodha and ZOHO Ceo’s arguments on listing mistaken?

A case of Tail wagging the Dog. You always have a choice between Dmart and Reliance Power.

Recently Nithin Kamath CEO of Zerodha has tweeted the reason to Not IPO is because it burdens with unrealistic expectations and I quote “For a stock to do well, you have to outperform”.  The quote was retweeted by Sridhar Vembu – CEO of ZOHO and he quotes “I cannot run a public company with the kind of hyper-inflated valuations that are common today”.  

Companies performance expectations – decide valuation. Stock price do not decide company expectations.

The price of a stock is a function of the crowds’ expectations of the future potential of a company’s cash flows.  These expectations, in the long run, are set out the company – in terms of guidance and explaining to investors what the opportunities and risks lie ahead.  On a given day – however – As Warren buffet puts it – Mr. Market may behave like a Drunken psycho – very enthused on a few days and very depressed on others.

IRCTC stock moved up 3 x in a year -does not mean Indian govt decide to launch more trains and sell tickets to justify the stock price. It is very very foolish to think that investor expectations and stock prices – should anyway influence promoters/CEOS to change how they run a company.

Tail wagging the Dog?

The IPO problem – Valuation greed.

Nithin Kamath on 7th April had tweeted a set unconventional reason of why he was not considering an IPO on April 7th.  One of the key reasons was that – there was no need to raise money.   We don’t want to raise money because somebody is ready to give it to you.  Zerodha was profitable and debt-free. This was very well applauded and somebody was needed to point out the excesses of investments bankers and corporates. 

Having been part of IPO mandates – one of the portions of every deck or presentation is about the timing of the IPO from a greed perspective.  Investment bankers spend time explaining to the corporates why the markets are hot and especially for their sector and this is why the company needs to go for IPO now.  Also, after a very successful IPO in a sector – investment bankers reach out to other private companies in the sector explaining to them – why the sector is hot and the timing is right. Also, the Investment bankers get into a rat race of quoting the highest possible IPO price to win the mandate – building the bluest of blue case scenarios.   

We had reached out to a TATA company for an IPO and said the market is currently interested in your sector and valautions high. The TATA mgmt was quick to retort – “Do you think we list a TATA company because the market is “HOT”.

Greed of wealth sounds bad – Pursuit of wealth sounds good

The desire to earn fame and wealth and to create value drives entrepreneurs. Azim Premji has been in pursuit of wealth since very early and built a mammoth enterprise and is proud to be miserly.  Despite that today he is one of the biggest philanthrope apart from creating huge value for investors, employees, and customers. Zerodha and ZOHO can continue their pursuit of creating wealth and staying private – but don’t need to discredit other businessmen who are trying the same via the listing. It’s no businessman/promoters’ fault if the company stock is overvalued – until and unless he is misguiding. 

NYKAA or Zomato – outperform market and not investor expectations.

NYKAA Falguni Nayar would have been heavily wrong if someone in 2012 asked her about projections for Nykaa for 3 years and maybe wrong today also.  New companies like Zomato regularly change course – like exiting Fitso and global presence.  There is no compulsion to make 2-5-10 year projections – nobody is forcing you. Companies like Zomato also don’t conduct qtly investor concalls – maybe to stay away from the quarter to quarter focus.

One of India’s biggest private media conglomerates – when I pitched them for IPO (Part of my job) clearly said to me – We don’t want a 25-year-old analyst questioning our chairman on Quarterly profits and targets. We don’t live quarter to quarter.

STOCK markets don’t live Qtr. to Qtr. either

It is often blamed by businessmen/corporates that analysts and investors are short-sighted.  Well, I can speak for the investor community at large – Don’t be fooled by our questions.  Our interest is in making money and enough literature/books have been written about the compounding of wealth and benefits of long-term investment.  Warren Buffet and RK Damani have exhibited it.  We investors have been alive and kicking as long as corporates have been and we know how to make money. CEOs should stop questioning the intent of stock markets and focus on their business. Investors should stop giving targets to CEOs and focus on the returns. 

Promoters can always list at what they think is right valuation

DMart opened at 2x of the IPO price and is currently at 15x.  Does that mean ace investor RK Damani was incapable of pricing his business right?  It only means, he priced at what he thought was right.   The same goes out for NYKAA, IRCTC, or maybe GR INFRA.  Nithin Kamath can list by pricing Zerodha like Dmart or Reliance Power. That’s his choice, but don’t blame current valuations and expectations be a reason to not list. Let it be the lack of needing money. and my struggles

Rs.10K reward for anyone who can help me icici direct FNO working (problem 3).

Disclaimer:  I have been an employee of ICICI Securities and retired from their after 12 years of employment.  (80% of my work career).  I am by default a customer of icici direct for 14 years as employees of icici securities can only use icici direct for investing.  

Problem 1: The backend cares a damn about customers; the front end is not trained enough to respond to queries of changes done by the back end.  

Situation:  Being an active market investor – I park my surplus fund in liquid funds (HDFC AMC), so that I don’t miss any opportunity. these funds are generally available at 24 hours’ notice and I am doing this for the last 10+ years.  However, since last, 1 month time taken to withdraw is 5-10 days. The reason being attributed is “pending for processing at the Registrar’s end.    This is a new development as customers have to select the mode of payment.

I only use the OLD icici direct website (the new one is shitty) and the option to select the mode of payment is only on the new site.  Also, the 2 options to select the mode of investment/payment are given as – PHYSICAL FORM and DEMAT FORMAT. Now common sense will say that the better option to select is the Demat form.  BUT icici direct likes to challenge common sense- demat form will ensure delayed payout, whereas physical from actually means electronic units. Big round of applause for nomenclature selection by ICICI direct. PHYSICAL from is the new IN thing.  Now the sums I am talking about are decently large and nobody at icici direct cared to inform me or their front-end team of the changes. Also, I have learned a lesson – always use the new site – the old site may be better – but mgmt. will ensure the shift to new adding such bugs.

I needed the money to do the HNI application in Nykaa. Lost opportunity.   I had applied for redemption on 26th October and reapplied on 2nd Nov as instructed by people at icici direct. Still not got my money.

Problem 2:  The namesake business of RM and equity advisors.

When I log in to icici direct account there are 2 people who are mapped to my account.  An RM and an equity advisor.  The RM while mapped – when contacted informs me he/she is not the RM. This mapping (BIG SURPRISE) is done by icici bank.  Why the hell is icici bank – mapping customer of icici direct???  Maybe it is to make the customer feel good. While in effect he cannot actually get any priority help.  Also, with icici bank doing the mapping, icicidirect blames icici bank for the wrong mapping and icici direct absolves itself from responsibility. I cannot of course reach out to icici bank for my problems with icici direct.  I should not be reaching out to the president of India if my MTNL connection is not working.

However, what is interesting is that the RM of icici bank is aware of all my investments via icici direct and is continuously asking me to do the MF investments via icici bank. this will help him personally.  Really appreciate the enterprising nature of icici bank, but please don’t compete with icici direct, and even if you do – please remember the convenience of the customer.

The equity advisor only calls you once in 6 months to make his presence known. He is otherwise of no help. 

Problem 3: Impossible to file tax returns using a report from ICICI direct.

Now that I have left icici securities – I can trade in futures.  However, for tax purposes, it’s nearly impossible to calculate your annual F&O profits from reports provided by icici direct. This is definitely a problem for people who have unexpired options and futures at the end of the year.  

In the F&O p&L, icici direct gives you your profit based on MTM and inflows but does not adjust for premium on options bought or sold last year ( which is fine).   In the F&O section – portfolio – it is not possible to know P&L based on dates but only based on contract month.  So even if you select April to march – the trades are done for next year’s April contract in March will be missing. And they do not allow you to select based on dates. 

Just to highlight what discrepancy it can cause – as per the F&O bill I incurred a loss of 10L last year, whereas as per the F&O portfolio I incurred a profit of 12L.  the reality is that I actually did a profit of Rs 10L.  But the only way to figure out to do the right tax reporting is to download and enter everyday contract notes and bill details.  And icici direct will not oblige in providing them in excel format – even if you ask/beg to the senior mgmt.

Why am I still continuing with ICICI direct and complaining?

Well, I have shifted 95% of my transactions to Zerodha.  However, after leaving ICICI direct – in a moment of heightened brand/company loyalty, I opted for the 3L prepaid brokerage plan.  I have exhausted 80% of it. Need to exhaust the remaining before I say goodbye.

ZEE Entertainment – Fool’s Paradise or Ugly duckling?

While, I have stopped actively looking at Zee entertainment and have not followed its results in detail.  I have been pulled back by a number of messages seeking my opinion after the company Q4FY21 results.

Some of the points that demand a look at ZEEL are:

  • Improvement in cash flows – a key concern of the past.
  • Withholding investments in sugarbox – an unnecessary deviation earlier.
  • Improved receivables from Dish tv. 

But is it all expectations management?

A para from Expectations investing by Michael Mauboussin

Analysts have to guess how much a company will earn each quarter. But a company is allowed to give guidance, about what it thinks its earning will be.  This guidance number usually shows up as the consensus estimates among analysts. If the company’s actual earnings meet or just beat the consensus, both the company and the analysts win:  the stock goes up, and everyone looks smart.  The game might not sound so hard, but it requires a lot of cooperation.  Companies are under pressure to achieve the consensus earnings estimate, while analysts rely on the companies to help them from their earnings expectations in the first place.

Companies have two levers in the game. They can manage expectations, manage earnings or do both.  

Now we all know that ZEEL promoters are pushed to the wall and they are left with only 4% shareholding of the company. Also, the group’s other assets have been sold to pay off.  The only scope for the promoters to get back is through their investments in ZEEL.  They have the maximum incentive to do make things look good.

What has not changed and always been my worry is the ballooning and never-ending investments in inventory which for an outsider is a black hole.  I have earlier shared why the very size of the inventory in books is a bold question mark given the limited size of annual movie rights in India.  While investment in sugarbox was an obvious red flag, the ballooning inventory is a less obvious red flag.  Given the nature of it – an analyst’s ability to judge the quality of investments in that will be always limited.

My final take – I don’t invest in cryptos because of two reasons – I don’t understand and cannot trust.  For ZEEL it’s just the trust. 

And I am not writing a blog on its investment in Radhe – I don’t understand it. 

My previous blogs on zeel:

My First Failed Interview – A blessing in disguise.

I would have not given more than 5 interviews in my life for a Job after campus. The first interview was with Shilpa Krishnan – analyst at Kotak securities. Second – was to Telecom analyst at Merrill known for short temper. The third was for I-SEC in 2007 from where I retired.

My first failed interview was one of the most defining interviews of my career.  Kotak securities in 2005 was one of the best places to work with Sanjeev prasad as Head of Research and Alroy Lobo as Head of Equities.  I had applied for a job as an associate under the Cement analyst – Shilpa Krishnan.  The interview was quick with Shilpa and she cleared me and I was next to meet the Head of research.  Sanjeev Prasad asked me typical questions on DCF and WACC and I would have given reasonable answers which had cleared me for a job. I then met someone from HR and they detailed from me by when I can join.  However, as what seemed to be a formality before confirmation, I was to briefly meet Alroy Lobo. 

Meeting with Alroy Lobo – turned out to be unexpected. I was not aware that Alroy had been an ex-IT analyst.  In my first year at SBI caps – I was an associate to the IT analyst – Pratish Krishnan.  As part of my first report as an associate – we had initiated coverage on a company called Subex systems (now bankrupt) and within a few months, the stock had nearly doubled.  Alroy had read about my coverage in my resume and started to ask me questions on Subex. 

Some of the questions were:

  1. How is the accounting of acquisitions being done by the company?
  2. What is the Cashflow adjusted ROI of the company?
  3. How is the company accounting for revenue from its contracts?

I tried to mumble a few answers. I soon understand that Alroy had gauged into my soul and understood my complete ignorance and superficial understanding.  I knew the end result.

Not getting the job – was the best thing to happen.

I did not get the job but after the interview, I made a pledge to myself to never feel humiliated when questioned.  I started to work 6-7 days at SBIcaps putting in late hours– something that was not regularly done at SBIcaps. All I can say is that failed Interview with Alroy was one of the best things to have happened to me.

I met Alroy a few years later when he was part of Kotak MF as their team wanted to understand the TV18 group.  Their team was told that I was the go-to guy for anything on the TV18 group – despite not having coverage. The meeting which was supposed to last for an hour – lasted for more than 2 hours.  At the end of the meeting – I thanked Alroy for the failed interview in 2005.