Sometimes, one writes with a heavy heart. I guess today is one of those times. I had been a proponent of investing in Noida Toll Bridge Company Ltd(NTBCL) for its free cash flows, debt free business and a moat which was a secure Government Agreement between ILF&S and the UP Govt.
The SC judgement on 28 Oct 2016 has given an answer to the most important question, “Why is India at 130th position in ease of doing business?” One reason is we have rules and laws, but we can flout them at will. Courts can be populist like the politicians. Without even considering the fate of the minority share holders, or a warning, the Supreme Court has suspended toll collection. For an investor, what can be worse than a business which exists but has no customers. Like a shop which I own but I cannot open due to the law prohibiting me to even open the shutters. Noida Toll Bridge Co is in a similar state.
The court has asked for an independent audit by CAG or some other firm. As things stand, these are long drawn processes in India. Also, even if NTBCL tries to monetise its land and assets, it is a long haul. Shareholders may get @ RS 27-28 per share but the waiting time in terms of time value of money may be too much. When will courts allow that, when will NTBCL call for bids, when will money come into the till and be distributed? It is a bugger’s muddle as it appears now. It may be prudent to sell if not 100% then at least 80-90% of your holdings.
As I see, I had analysed and bought the stock at Rs 21/- in 2012. Since then, I have received Rs11 as dividend. And I am getting Rs 15.50 as liquidation price today. So, I receive Rs26.50 per share. At 8.1% interest of PPF, I should be getting Rs28.70 per share. But I have Rs 26.50. So I have lost money, my loss is the opportunity cost of this money. But by cutting my losses I live to fight another day.
There is a possibility that the Supreme Court may give an interim relief and the stock may jump by 40% in two to three trading sessions. For that you may have to take your call.
The lessons for me are:-
1. Never underestimate the power of the Indian Legislature, Judiciary or the Executive. These three organs can do what they want with no accountability, whereas the forefathers of the constitution had distributed the powers to maintain checks and balances. In 70 years of independence, we move one step ahead and two steps backwards.
2. The people are not interested in paying for world class infrastructure. They want every thing for free. Urban infrastructure which is choking will keep choking. Why should business houses put up infrastructure, pay bribes and still be not assured of returns.
3. Just like Vodafone was slapped with retrospective penalty, any contract is subject to Indian laws and, the law is an ass.
4. Listen to contrarian opinion and despite trying to leave my biases, I think I suffered from confirmation bias and discounted warnings of resident associations and dharnas by political parties.
For the time being, I eat a humble pie.