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Tuesday, March 4, 2008

Mallya may dilute 15% stake in merged airline

The move aims to raise Rs 16,000 cr for expansion.

Liquor baron Vijay Mallya could end up diluting 15-20 per cent of his 76 per cent holding in the merged airline as a result of Deccan Aviation’s proposal to raise Rs 1,600 crore and expand authorised capital by Rs 350 crore, said airline experts.

Mallya is trying to raise Rs 1,600 crore for its airlines business through Deccan Aviation, the listed company into which he plans to merge Kingfisher Airlines. Deccan has called for an EGM on March 18. Deccan also plans to expand its authorised capital from Rs 150 crore to Rs 500 crore by adding 25 crore shares of Rs 10 each and one crore preference shares of Rs 100 each.

‘’This is meant for the overall expansion and international foray of Deccan and Kingfisher Airlines,’’ said Deccan Aviation Chairman GR Gopinath. UB Group executives were not available for comments.

‘’The merged entity will be a big airline and require a lot of money. The target of Rs 1,600 crore looks reasonable given their plans to fly abroad. To start with 4-5 wide-body planes, you would need Rs 750 crore,’’ said a senior industry expert. The funding would also help the two airlines sustain the cash burn.

Investment bankers feel the UB Group could opt for a QIP issue to mutual funds, hedge funds, or a private equity player as anchor investor.

‘’QIP is a good tool. It is fast and you just need 2-3 investors. They will evaluate various options, and play it by the ear,’’ said an investment banker.

Will investors buy into Kingfisher?
Indian carriers have together lost $700 million (Rs 2,800 crore) in 2007-08, estimated the Centre for Asia-Pacific Aviation. Airlines have lost close to $1.2 billion in the last two financial years. Kingfisher and Deccan have Rs 2,190 crore in accumulated losses.

Private equity (PE) investors have shied away from investing in Indian carriers, except in budget carrier SpiceJet. PE investors such as Capital International and ICICI Ventures, which had initially invested in Deccan, have cashed out.

Efforts by Deccan, Kingfisher and GoAir to rope in private equity investors have not met with much success. But experts feel Mallya stands a good chance this time.

‘’The worst is over. With consolidation, yields are firming up. With oil at $102, no new players are likely to come in,’’ said a senior executive with a PE player who requested anonymity.

‘’Investors will be looking at value buys. Oil prices will not remain so high. If I am looking at a 30 per cent market share, then I would look at Kingfisher closely,’’ added the investor.

‘’Investors are always willing to back the sector. It’s a specialised sector. These are investors who made money, understand the sector, and are betting more on the macro-economic factors,’’ said the executive with a private equity firm.

These are specialist airline investors such as Indigo Partners and private equity firms Capital International, Texas Pacific Group, Temasek and Istithmar, which has invested twice in budget carrier Spicejet.

The Tata Group has also invested in SpiceJet while Anil Dhirubhai Ambani Group was in talks with Deccan before Mallya jumped in the fray and picked up a 26 per cent stake in the budget carrier.

Experts feel Mallya may get different type of investors, large hedge funds, local mutual funds, West Asian institutions or some local corporate group.

Posted by Srivatsan at 7:24 PM

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Understanding Short Term Trading

Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.

Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.

Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.

Types of Moving Averages

1) Simple Moving Average (SMA)

SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.

2) Exponential Moving Average (EMA)

EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.

The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.

A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.

In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.

Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.

Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.