Monday, December 14, 2009

Celebrity Fashions ltd

Here is another Stock in Textile sector which performed badly.I don't  know the reasons, but it got beaten down badly from 100+ to 20...and no one is showing interest in this stock,

Here are few things which i look and feel this as good value buying
Mcap :30 cr
Sales:80 cr
Share Holding :Public 20%
rest with Promoters and other investors which is a Good sign i guess
only last two years it had performed badly and all the ratios and figures are bad for the past two years

Debit/Equity is 15 which is very high is the only concern

But recently they are planning to divest part of companies units into separate entities so that they can capture true potential and had asked PWC and SBI Capital to Advice regarding this .

Pradeep Reddy Lekkala

Explanation of Debentures

Company Account: Issue of Debentures

Q.1. What do you mean by the term 'Debenture'? What are the kinds of Debentures?

Answer: When a company desires to borrow a considerable sum of money for its expansion, it invites the general public to subscribe to its debentures. A debenture is a certificate issued by the company acknowledging the debt due by it to its holders and is issued by means of a prospectus in the same manner as shares.

Kinds of Debentures:

The following are the various types of debentures issued by a company:

  1. Security Point of View
  1. Secured Debentures
  1. Fixed Charge: A fixed charge is created on certain specified assets generally immovable such as land and building, plant and machinery, long term investments and the like. So it is equivalent to mortgage. When the charge is fixed, the company can only deal with the property subject to the charge, that is, a fixed charge allows the company to retain possession of the assets but prevents the company from selling, leasing etc., of the assets without the consent of the charge holders. The property identified remains so identified during the period for which the charge is created.
  1. Floating Charge: A floating charge is generally in respect of movables, that is, properties which are constantly changing. It does not amount to mortgage of property. A charge on the stock-in-trade from time to time of a business is a floating charge. When an item is sold out of the stock, the charge ceases to attach to it and the buyer cannot be asked to pay the debt. When a new item is added to it the charge automatically attaches to it without further new agreement. So the property is certainly identified at the time of creation of charge; its very identification goes on changing and the final identification is at the point of time when the charge crystallizes or becomes fixed after which the company can mortgage or sell that property subject the charge. The charge will continue to attach only so long as the item remains unsold.
  1. Unsecured Debentures: When debentures are issued without any charge or security, they are termed as unsecured or naked debentures. Holders of unsecured debentures are ordinary unsecured creditors and do not enjoy any special rights.
  1. Tenure Point of View
  1. Redeemable Debentures: Such debentures are redeemable at par or premium after the expiry of a particular period or under a system of periodical drawings.
  2. Perpetual Debentures: Debentures may be made irredeemable or in other words perpetual. Such debentures are redeemable either on the happening of a contingency or when the company is wound up or when the company decides to redeem.
  1. Mode of Redemption Point of View
  1. Convertible Debentures: Debentures may be convertible into equity or preference shares of the company on certain dates or during certain periods on the basis of an agreement between company and debenture holders.
  1. Fully Convertible Debentures: When the full amount of debentures is converted into shares of the company at agreed terms and conditions. The conversion is to be made at or after 18 months from the date of allotment but before 36 months.
  2. Partly Convertible Debentures: When only a part of the amount of debentures is convertible into shares at a specified time and remaining part of debenture is redeemable on agreed terms.
  1. Non-Convertible Debentures: Such debentures are not convertible into equity or preference shares.

  1. Coupon Rate Point of View: Usually the debentures are issued with a specified rate of interest, which is called as coupon rate. The specified rate may either be fixed or floating. The floating interest rate is usually tagged with the bank rate and yield on Treasury bond plus a reward for risk. Since the bank rate and yield on treasury securities keep on fluctuating over a period of time any change is compensated in the risk premium. The rate of interest in such a case is quoted as "PLR + 50 basis points". In this case if it is assume a PLR of 9% the rate of interest would 9.5%. The "+ basis points" is determined in relation to risk involved.

A zero coupon bond is one which does not carry a specified rate of interest. In order to compensate the investors such bonds are then issued at a substantial discount. The difference between the face value and issue price is the total amount of interest related to the duration of the bond. In order to calculate the periodic charge of interest, the amount is calculated by using the following formula:

BO = MV/(1+ i)n


BO = Value of zero coupon bond.

MV = Maturity value of zero coupon bond.

n = Life of zero coupon bond.

i = Required rate of return.

In the above formula the value of (1 +i)n is easily computed by dividing issue price in the maturity value of the bond. To find out the interest rate applicable to such bonds, we need to look for present value interest factor tables across the period equal to 'n' and find out the value near the above computed value. The interest rate in that column will be the interest on bonds. Thus, if we know the interest rate, years to maturity and the issue price, then the maturity value can be computed. In the same manner, if interest rate, years to maturity and maturity value are known, then the issue price can be computed. Present value interest factor for i rate of interest and 'n' years is written as PVIF,i.n and are given in present value of Re. 1 table shown in the appendix.

BO = MV x PVIF,i,n

MV= BO/PVIF, i. n

PVIFi.n = BO/ MV

Q.2. Briefly explain the following concepts:

  1. Debentures
  2. Bond
  3. Charge
  4. Debenture Stock


1. Debentures: The word 'Debenture' is used to signify the acknowledgement of a debt, given under the seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate until the principal sum is repaid and it may or may not give a charge on the assets of the company as security for the loan.

Section 2 (12) of the Companies Act states that "a debenture includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not".

2. Bond: Bond is similar to that of debenture both in terms of contents and texture. Traditionally government issued the bonds, but now these are also issued by semi-government and non-government organizations. The significant difference between bonds and debentures is with respect to the issue condition i.e., bonds can be issued without predetermined rte of interest.

3. Charge: A charge is created on certain specified assets generally immovable such as land and building, plant and machinery, long term investments and the like. So it is equivalent to mortgage. When the charge is fixed, the company can only deal with the property subject to the charge, that is, a fixed charge allows the company to retain possession of the assets but prevents the company from selling, leasing etc., of the assets without the consent of the charge holders. The property identified remains so identified during the period for which the charge is created.

4. Debenture Stock: Debenture stock is a document representing the loan capital of the company consolidated into one single composite debt which may be divided into the transferable in convenient units of fixed amount. This sum may be of any amount and may include fraction of a rupee. Certificates are issued to each debenture stockholder indicating the amount of his contribution or holding. The debenture stock must be fully paid. Debenture is always for a fixed sum and is transferable only in its entirety by a debenture stock may be the consideration of the several debenture amounts and a single certificate issued covering many debenture. Similarly debenture stock may be transferable in parts if articles so permit.

Q.3. Distinguish between Shares and Debentures.


Basis of Difference



1. Capital

A share is a part of equity or preference share capital of a company. The holders of the shares may be described as part owner of the company.

A debenture is a part of loan capital of the company. The holder of a debenture is the creditor of the company.

2. Return

Return on share is known as dividend. A company declares dividend only when there are profits and its rate may vary from year to year.

Return on a debenture is known as interest and the company compulsorily pays it at a fixed rate whether there are profits or losses.

3. Appropriation

Dividend is an appropriation of profit and is therefore debited in Profit & Loss Appropriation Account.

Interest on debenture is a charge against profits and is therefore debited in Profit & Loss Account.

4. Charge on Property

Shares do not create any charge on the assets of the company.

Debentures create a charge on the asset of the company.

5. Redemption

Normally the share capital is not returned during the lifetime of the company.

The amount of debentures has to be returned after a stipulated period of time as per the conditions of issue.

6. Discount on Issue

Shares can be issued at discount only when the conditions lay down in Section 79 of the Companies Act 1956 are fulfilled.

There are no restrictions on issue of debentures at a discount.

7. Premium on Issue

The premium received on issue of shares can be utilised by the company subject to the conditions given in Section 78 of the Companies Act 1956.

Premium received on issue of debentures can be utilised by company in any manner it likes.

8. Purchase

A company cannot purchase its own shares

A company can purchase own debentures from the open market.

9. Convertibility

Shares cannot be converted into debentures.

Debentures can be converted into shares according to the conditions of issue of debentures.

10. Control

A shareholder has the right to control the affairs of the company by exercising his right to attend the general meeting of the company and by exercising his voting right.

A debenture holder does not have any right to control the affairs of the company.

11. Winding up

At the time of winding up the shareholders are paid their capital at the end.

Debenture holders have a priority as to return of amount received from them in the event of winding up of the company.

Q.4. Explain the meaning of debentures issued as collateral security by a company. Show its treatment in the Balance Sheet.

Answer: When debentures are issued as security in addition to any other security against a loan or bank overdraft such an issue of debentures is known as issue of debentures as collateral security. The idea of such an issue is that if the company does not repay the loan and the interest and the main security is not sufficient, the bank will be entitled to sell the debentures in the market or the bank may keep the debentures with it. If the company repays the loan, the bank will return the debentures issued as collateral security to the company.

No entry needs to be passed in the books of the company because debentures are issued only as a collateral security. Debentures become alive only when loan is not repaid. The fact of such an issue of debentures must be clearly stated in the Balance Sheet by way of a note under the loan and debentures as shown below:

Balance Sheet of --- Co. Ltd.
As on---





Secured Loans

Bank Loan

(secured by issuing 6,000 12% Debentures of Rs. 100 each)


Alternatively, the following entry may be passed in books of the company:








Bank A/c Dr.


To Bank Loan A/c


(For loan borrowed from bank)

Debentures Suspense A/c Dr.


To 12% Debentures A/c


(For 6,000 Debentures of Rs. 100 each issued as collateral security)

Balance Sheet of --- Co. Ltd.
as on---





Secured Loans

Miscellaneous Expenditures

Bank Loan


Debentures Suspense A/c


12% Debentures

(6,000 12% Debentures of Rs. 100 each issued as collateral security)


Q.5. Briefly explain the meaning of Trust Deed. Who can be a Trustee? What the duties of a Trustee?

Answer: When a series of debentures are issued to numerous debenture holders, it is not a practical proposition to create a number of separate charges on the properties of the company in favour of individual debenture holders. And it is practically impossible for the debenture holders also to keep a watch on the assets of the company in order to safeguard their own interests. It is thus becomes necessary to execute trust deed by which properties of the company are charged by way of mortgage to the trustees. A trust deed is therefore a contract between the company and the trustees for the debenture holders. Generally trust deed has to be executed before the debentures are offered for public subscriptions so that the prospective investors may satisfy themselves as to the contents of the trust deed and credibility of the trustees selected by the company to look after their interest. A trust deed is also a mortgage deed between the company and the trustees for debenture holders. The debenture holders are merely beneficiaries under the trust deed. Section 118 of the Companies Act gives the right to obtain the copies and inspect trust deed by any member of the company. The advantages of creating a trust deed are:

  1. The trustees can act expeditiously and effectively in safeguard interests of the debenture holders and enforcing the security on their behalf.
  2. They will act as watchdogs in seeing and insisting that company's obligations under the trust deed are carried out properly.
  3. They are generally empowered to settle and adjust matters of dispute with the company.
  4. In cases of doubt or difficulty they can convene meetings and enable the debenture holders to meet and discuss and authorize the trustees to pursue any course of action to be beneficial to the debenture holders as a whole.

Who can be Trustees?

Only the following are eligible to be debenture trustee:

  1. A scheduled bank carrying on commercial activity.
  2. A public financial institution within the meaning of sections 4A (1) of the Companies Act 1956.
  3. Insurance Company.
  4. Body Corporate.

Who can not be a Trustee?

No person can be appointed as a trustee if he:

  1. Beneficially holds share in the company.
  2. Beneficially entitle to receive money, which are to be paid to/the by the company to the debenture trustee.
  3. Has entered into any guarantee in respect of principal debts, secured by debenture or interest thereon.

Duties of Trustees

  1. Call for periodic reports from the body corporate
  2. Take possession of trust property in accordance with the provisions of the trust deed
  3. Enforce security in the interest of debenture holders
  4. The charge created against the assets under debenture trust deed should be completed within 30 days of the issue of allotment letter and dispatch of debenture certificate.

A debenture trustee who fails to comply with any conditions, contravenes any of the provisions of the Act, rules or regulations, the Companies Act or rules made thereunder, may disqualify him to act as trustee.

Pradeep Reddy Lekkala

Sunday, December 6, 2009

Thursday, November 26, 2009

E-Voting rights

Here is a news item which gives voting rights to minority shareholders.

Shareholders of a company can now cast their vote electronically on company resolutions through an Internet-based e-voting platform. The e-voting platform for corporates was inaugurated by Mr Salman Khurshid, Minister for Corporate Affairs, at a function organised by the Bombay Stock Exchange (BSE) and Central Depository Services Ltd.

"It is a major step forward that would bring more transparency to the system," Mr Khurshid said, adding that he wished the same could happen in the election of political representatives as well.

Dont know how much it can protect minority investors

The e-voting platform has been developed by CDSL Ventures Ltd (CVL), a wholly-owned subsidiary of Central Depository Services Ltd (CDSL).

"The e-voting system will empower shareholders to participate in the decision-making process of companies in which they have invested, thus making their vote count," Mr S.S. Thakur, Chairman of CVL, said.

During the voting period investors can cast their vote by visiting the Web site ( and log on using their demat account number and permanent account number (PAN) and password.

how will be sending me the password? can that be changed ? Need to look it .

Companies would benefit from this system as the remote voting process would also result in savings on various cost overheads, which are currently incurred for postal ballot.

Pradeep Reddy Lekkala

Wednesday, November 25, 2009

Boom Boom Gold

Whaooo ..just heard a rumor in market that RBI is going to buy gold once more..Reason they know that dollar is going to come down in near future and all there dollar denoted assets are going to come down, so inorder to hedge it they are buying the gold ,so that any increase in gold value should counter with dollar dropping .Question is how much Gold should RBI buy to counter the dollar free fall atleast for near term.

Will explain with facts in coming posts

Go Edserv Go up.................

I guess this is worst desperate post from my side expecting Edserv to go higher.I am happy that its green right now.But the inevitable question is how far can it stay in green ?

Tuesday, November 24, 2009

Who leaked the liberham report?

I also joined the bandwagaon of questiong (BTW who am i asking this ? ...i guess to myself...since my words are not heard by the govt) coming to point. who is responsible for the leakage of this report? how to find this ? dont have any clue right...mee to no as of now

but i can see that NDTV got the report first as they boast it by sharing on their server or is it INDIAN EXpress which claims it has printed the report first in the newspaper, whoever it be,,either of them had reported first as they why can't we book them and ask how gave the report to them ? is it not possible ?

When we know that one report is with liberham and other with home minister. how come a copy went to media? someone in homeministry leaked it right? since justice liberham is sincere i beleiev

now why did they leaked to media is another question which is asking me ? is it ruling party got kicked in a@@ by the entire opposition coming together in attacking UPA on farmers issue
i guess divert the blame on govt on price rise issue govt looks wantedly side track the issue and divide the opposition

congrats to govt

now its too late for me to post it now..will resume it tomorrow Thanks
Pradeep Reddy Lekkala

Link of Liberhan Commission report

Though i don't have much time to read into the contents of the report am attaching the link where in people interested in ATR and commissions report can have a look at it.

Saturday, November 21, 2009

understanding of dollar inflows

Here is a article which i took from economic times clearly explaining about the effects of dollar inflows

Its raining dollars in India. Such a dollar deluge can be quite harmful. Here is how. When a foreigner Joe invests $100 into the Sensex,

he first needs to convert his dollars to rupees. So, let's say the exchange rate is 47, which means 100 dollars becomes Rs 4,700.

After a couple of months the Sensex rises by 10 per cent (it's hot right now, and that's why Joe is putting his money ). The investment of Rs 4,700 becomes Rs 4700 + Rs 470 = Rs 5,170. At this point, dollars coming into the Indian economy have made the rupee stronger, so that the exchange rate is now 46 instead of 47.

So, when Joe decides to collect his winning investment, he gets Rs 5,170 divided by 46, which when calculated is $112.4. In short, he put in $100, and got back $112.4, even though the Sensex went up only by 10 per cent. This 2.4 per cent advantage is simply an added icing on the cake, not available to a desi (rupee) investor. The inward pressure of dollar investors also makes the Sensex go up dizzily. That makes Joe even happier.

He tells his friends. They all start investing here. Dollars pour in, and the inward pressure gets even more intense. It soon becomes a feeding frenzy . This Sensex is a "sure thing" say the foreign punters. You know how this ends, don't you? One fine day, with a small rumour , the tide turns abruptly. The bubble is pricked.

There is a stampede to get out. The financial world is known for such herd mentality and abrupt reversals. Once the investors rush out, this whole model starts going in reverse.

Meanwhile, the sufferers are the desi rupee investors. This indeed happened in September 2008, when the Sensex crashed, because the foreign institutional investors pulled out funds from India due to the Wall Street collapse. All that the desi investors could do was hold a morcha on Dalal Street. They did not know what hit them.

Of course, all this stock market investment is risky business. So, investors should heed caveat emptor (buyer beware). If they are taking risks, it's their funeral. Why should the government or the Reserve Bank intervene?
Under normal circumstances, the investors should be left alone with their risk-taking . However, it is difficult to say what 'normal circumstances' are. Since a trickle can become a deluge very quickly, normal can turn abnormal almost overnight. Hence, the policymakers need to keep a constant vigil on this incoming deluge of dollars.

The dollar dilemma is also faced by other developing countries. Recently, Brazil started tightening the screws on inflows of dollars, since their local currency strengthened rather quickly and unhealthily. Taiwan, Indonesia and South Korea too, have imposed some controls on dollar inflows.

The controls are not so much on stock market inflows, rather on the money that flows into debt markets and banks. Since dollar deposits earn close to zero per cent in fixed deposits in American banks, the Joes are tempted to put that money into an Indian bank into rupee deposits, which gives them 10 per cent. It's safer than the stock market. In addition, you get an additional 2.4 per cent due to rupee getting stronger, remember?

Of course it's much easier to do this in Korea or Taiwan, thanks to India's restrictive laws for foreign deposits.
As long as interest rates in America are low, and economic outlook remains uncertain or bleak, the dollars will tend to flow to emerging economies.

Those economies, like India, will need to put up some barricades, lest the dollar deluge destroys the edifice of the economy.

Of course, the dollar monsoon has not quite begun, yet it's better to keep our umbrellas ready.

Friday, November 20, 2009

Random Thoughts and Observations 1

We have seen an usual rally in Indian markets,usual in a way where its positively correlated with East Asian Indexes like shanghai and hongkong exchanges..after post lunch it generally align with European markets, But what is special today in today's rally is we were down by -.5% in morning and once Europe opened in Green with .5% upside , we went 1.2% Green all of sudden that mean around more than 100% in nifty in few min...and u know whats happening in Europe right now...its -0.6% down, seems the reason they gave is dollar index going up and Europe in it seems US is also joining them in RED, out of all world markets Indian markets closed in GREEN with huge upside ..(that's cool right)..but not shorted on market this evening...keeping fingers crossed for now..

And coming to Dollar index..why is this getting all the limelight these days, reason is Dollar went down index 80 and still FED is not going to increase the rates and all the dollar value is going down
First Question why dollar going down? IF dollar goes down whom will it help? why Equities are going up..though i know that right now they are inversely correlated from 2000.., Why are they supposed to be inversely correlated? why is FED happy to keep dollar low? do they want to increase their asset value and clear the bad debts? and come clean afraid this is the reason?

And one more questions came up to my mind..why obama visited China and i guess Singh is also going to US? any relation? Till now i couldn't find any..But will find out sooner

Wednesday, November 18, 2009

Tasks to be Done :

I am looking for Historical Data related to FII Inflows ,Outflows and also Dollar index which is traded at ICE, if possible if i can get Dollar vs rupee historical Data also, then hope it would present some understanding . Hope that i will collect all these information and present it in coming days

hope i get some information from SEBI Database or RBI Database

Pradeep Reddy Lekkala

Friday, November 13, 2009

Holy Link of Stock Market

I Call the below Link as Holy cause it gives one a fair idea where markets is headed.

When i say markets i mean whole global markets in which trade is done day to day in specified time hours.One important thing about this is ICE' Inter Continental Exchange" what a name... from past few days am following this link where it gives Dollar index which is traded in ICE which gives DOLLAR value in International Market

This Dollar Index is dictating the terms in Worlds financial Markets.At least this is what i believe for now

If you see the trend for the past 1 yr it gives a fair idea .You can see that it peaked in March-April..Remember at that time at least our INDEX (both SENSEX and NIFTY) are down..From then on if you see Its going down like anything .Reason i don't know as of now...What i think ...FED has printed a lot of money and distributed in market just like that .(very crude of saying..will tell you the exact phrase later on....) as Liquidity is increased dollar value becomes low as long as FED doesnt increase Rate its going be like that .

Now coming into Indian Markets, the run up in market is due to low interest Cash in Dollar
(infact its not low intrest its ZERO intrest dollar borrowed overseas is Coming into Indian Markets (you see emerging markets in news...this is nothing but countries like india and china ,austriala etc...) and thus creating a t Bubble in Equities and raising a bubble ,but till what point can this bubble raise , it can raise as long as that run up is supported by the fundamentals of the economy , it gave a decent IIP number for last month (Though i dont have much knowledge on IIP}.

Now the question is what will happen once Dollar starts climbing?

Am afraid i huge sell off is coming in near months

Watch This Space ffor More Updates

By a one who wants to become------

Intelligent Investor

Monday, October 26, 2009

Baltic Dry Index starting to move

Last time i talked about this was sleeping i guess it woke up and started to move a bit..will see how long it will walk before coming for rest

Here is the latest look of it

Pradeep Reddy Lekkala

Friday, September 18, 2009

Its not Raining Here

Generally Rain will dampen the spirits of joy only when it rains at wrong time...but by this time of the year in the southern India it should rain
But that's not the case this year . As u can see from the pic already we are running a 40 % deficit rainfall on a average if this is going to continue for next couple of weeks.

Then i guess output of the kharif crop which is major crop in year is going to decrease drastically , which will lead to scarcity of rice .
now its mroe dangerous because the states which supplies rice to stock pile
are facing the drought situation.

If that is the case then it will lead to shorting in supply side..which will lead into high pirces in coming days.
That implies it will lead to higher inflation which i suspect will act as a barrier to the growth

Thursday, September 17, 2009

Baltic Dry Index is sleeping

See the link below which shows that BALTIC DRY INDEX is not at all moving.

With knowledge i have BDI is calculated on the no ships in sea which are on business mean taking cargo from one place to place ..that implies export and import activity . July early BDI was at its peak due do heavy purchase of raw materials by china to increase its stock pile and also concerns of monsoon might restrict the number of ships engaged in business so i feel it increased at that time . Now if economic activity has to increase it has to start from imports /exports ,because for any business raw material is needed to start the activity . So ships have to be in business but here in this index am not seeing any relation of that kind i missing anything..may be in next post i will include the price of booking a ship which might tell the actual demand of ships....guess that in turn should reflect the economic activity

Wednesday, September 16, 2009

No Visibility

Was observing PSTL for a very long time and i did see it stayed in around 20 for some time before getting settled at around 27 to 28 . Coming to the potential for this stock i believe this is not the real value which its holding as of now ,it will be much more than current MP. Though i am new to this field from some understanding of finance i can see that total market cap of this company is around 80 crores and now they are rasing funds of the size of 500 Crore ( i am missing anything) .company is making some plans to improve its business after some stuff happened late last year .
If you look at the EPS of the company right now its negative due to write downs made due to business but when u look for the future of this company i strongly believe it can deliver some Good Return when investors show some intrest in it

Right now its my underdog

Monday, September 14, 2009

Where is market heading ?

Off late am seeing many people posting questions to so called experts about the direction
in which market is heading , i believe am also one among them if given a chance. am not here to
undermine their abilities am just wondering where all did these experts go when market fared badly and what reco's they gave to investors about the direction
which made me believe that all are not correct .
Coming to the market here is the expert
(in making ..till will tell )I believe this is short term bull market which might end some where around 17500 to 18000
until unless fundamentals improve this will not get past that mark
Although speculators are going for a kill whenever they had the opportunity
but this trading range is not good for long term investors, also long term investors
should buy stocks when everyone is selling them and should sell when every one buys

will take u through EPS,P/E and historical values,Fundamentals in my analysis

...Will keep more of my analysis in later posts

Test Blog

This is my first post to test the blog look...