2. Bhagavatha - Chp 4 - (8) Story of Dhruva (1)

2. Srimad Bhagavatha - Chp 4 - (8) Story of Dhruva (1)

Who is Dhruva? Why did he take up penance? How did Sage Narada guide him? 

Dhruva is the youngest son of King Uttanapada and the grandson of Swayambu Manu. Swayambu Manu is the mind-born son of Brahma, the creator.

Uttanapada had 2 wives, Suniti and Surichi. Uttama is born to Surichi, and Dhruva is born to Suniti. Suniti was, however, sidelined by the king.

Once Dhruva, aged 5, saw Uttama sitting on father’s lap. He, too, wished to sit on father’s lap. 

Surichi refused to treat Dhruva equal to his son. She asked Dhruva to do penance and earn sufficient merit to be born in her womb. King Uttanapada haplessly remained silent.

Deeply hurt, Dhruva went to his mother. Suniti was aware of the situation through her inmates. She advised Dhruva to seek Srihari's blessing through penance and attain a place where no one could achieve.

Dhruva, with a single-minded goal, went to the forest. On the way, he meets Sage Narada, and indeed, the Sage appeared before him to facilitate the process. 

To test his determination, the Sage advises him to desist the thought of humiliation and revenge from his mind and lead a normal life as a child. Dhruva respectfully rejects it and seeks advice on the future course of action to achieve his goal. 

Sage Narada advises him to meditate on Srihari at Madhuvana, near Mathura. He warns that this task is not easy, though many sages meditated for years, decades, and yugas.

Sage Narada teaches the Beej Mantra ' Om Namo Bhagavathe Vadudevaya’ and describes in detail Srihari's beautiful form - Garland of Sylvan flowers, 4 arms with Conch, Discus, Mace and Lotus, Diadem ear-rings, armless, Bracelets, Kaustubha gem on his chest, yellow silk cloth wrapped around his waist, and gold anklets. 

The Sage asks Dhruva to visualize this loving form of the Lord and meditate Beej Mantra.

Source: Bhagavatha Mahapurana

M6. Mahabharata - Garuda Ends Slavery

M6. Mahabharata  - Garuda Ends Slavery of His Mother 

How could Garuda defeat devatas at Indraloka?

What did Garuda seek from Srihari? How could Indra trick the snakes and take back the nectar?

When Garuda went to heaven, there was uneasiness in the denizens of heaven. Devaguru Brihaspathi said “Garuda is heading towards heaven to take the nectar. None can oppose him, yet it is your duty to protect it. Be prepared for the event”.

Garuda carried heavy dust that blinded the whole area, and none were able to see. He defeated Gods and proceeded towards heavily guarded nectar. Its outer peripheral was protected by fire. Garuda took the form of 100 faces, collected water from holy rivers, and extinguished the fire. 

Going further, he saw lotus shaped iron rods with sharp spokes. Garuda reduced himself to a tiny size and passed through the blockage without getting himself hurt.

Further, two poisonous snakes with sharp eyes were protecting the nectar. Garuda threw dust on its eyes and killed them. He took the nectar and was flying when Maha Vishnu stopped him.

Maha Vishnu observed that Garuda had no intention to consume nectar, though he possessed it. He was carrying it solely to get rid of slavery of his mother. Hence, Maha Vishnu blessed him and asked to seek a boon.

Garuda desired to stay above Him (as a flagpost) on His chariot. He also sought to serve him forever. Mahavishnu was pleased and asked to serve as His vehicle. Garuda sought permission from MahaVishnu to feed on snakes and was agreed. 

Garuda was confronted by Indra with his Vajrayuda. Garuda said, “ I respect Vajrayuda, made using bones of the revered Sage Dadichi. I respect you as the lord of 3 worlds”. Garuda politely went away.

Seeing Garuda’s immense strength, Indra asked his guru Brihaspathi,” What made Garuda so powerful as he dared to take away nectar from heaven?

Brihaspathi said, “Garuda has no desire to consume nectar. He is doing it to get rid of his mother’s slavery which is justifiable. He has not committed any errors.”

Indra proposed to befriend Garuda. Indra said “Sharing nectar with snakes is not beneficial to the world. Their reproduction is high and is harmful to the people”. 

Garuda said, ‘I am aware of it, and I am doing it for a purpose. I will place the nectar before the snakes and you can find a suitable way to protect it. Indra agreed and followed Garuda incognito.

Nectar was placed on the divine Darba grass. Garuda said to snakes “ The Sun,The Moon, Varuna, Agni, and Prithvi are witnesses to the event”. The snakes were overwhelmed and agreed that slavery had ended for him and his mother, Vinata. 

Garuda said “Nectar is divine. Purify yourselves by taking a bath and performing Japa before consuming it”. Snakes readily agreed and did as was told. 

Meanwhile, Indra, who was witnessing the event, swiftly took nectar back to heaven. Snakes, on coming back, realized that they were tricked. They blamed themselves for their fate. The snakes licked on darba grass, and their tongue was split. 

Why was Indra defeated by Garuda?

Once, Sage Kashyapa desired to perform Yaga and requested Indra to procure required materials from the forest. He also made a similar request to Vaikali sages. Because of their tiny structure, the sages were struggling to lift one single darba grass. Indra mocked them and said such work shouldn't have been assigned to them. The Sages were angry and cursed Indra that he would be defeated by none other than Garuda. 

How could Maha Vishnu crush Garuda’s ego?

Garuda was egoistic as he was carrying Maha Vishnu. To crush his ego, Maha Vishnu asked him to lift His hand, but Garuda could not even move it.

M5. Mahabharata - Garuda's Slavery and Hunger

M5. Mahabharata  - Garuda's Slavery and Hunger

Why was Garuda enslaved and how he was humiliated? What was Garuda’s feed?

When Vinata's second egg hatched after 500 years, Garuda was born. He is also called Garudmantha, a man with wings.

Seeing him so powerful, Kadru and her snakes made him a slave too. Garuda was asked to carry snakes to far-off places. 

Once, snakes asked Garuda to carry them to Ramanaka, a picturesque island, deep inside the ocean. After a while, they asked him to carry them to a different place.

Garuda felt humiliated and felt he was wasting his time and energy on useless acts. He asked the snakes how he could get rid of this slavery. The snakes promptly asked him to procure nectar from heaven, a task too difficult to achieve.

Meanwhile, Garuda felt hungry and asked his mother how he could get food. Vinata told him to feed on Nishadas, forest dwellers residing on a far-off island. She cautioned him not to trouble Vedic Brahmanas. As directed, Garuda ate his food, but his hunger was not satisfied.

He approached his father, Sage Kashyapa, to help him get food. The Sage said to feed on an elephant and a tortoise residing in a nearby lake. These species constantly quarrel with each other and are of no use to anyone. They were born as siblings in their previous birth and cursed each other over property issues. 

As directed, Garuda caught hold of the elephant and tortoise by his claws and was trying to find a suitable place to rest and eat. He went to Mount Meru, and upon seeing a huge elephant, the divine trees begged to spare them. A Banyan tree agreed to let Garuda place the feeds on its branch.

When Garuda was about to place the feeds, he saw Vaikali Sages meditating upside down on the branches of the tree. Vaikali sages are too tiny, a size equivalent to the upper portion of the thumb, but are considered very powerful. 

Garuda took the branch but didn’t want to disturb the sages. Holding the branches delicately in his mouth, he came to his father. Seeing his son in a precarious situation, Sage Kashyapa politely requested Vaikali sages to move towards the Himalayas. The sages agreed and went away. 

Garuda took his feed to a deserted place and consumed them. He gained sufficient strength. Sage Kashyapa blessed his son in his mission of bringing nectar from heaven.

M4. Mahabharata - Birth of Aruna and Vainatheya/Garuda

M4. Mahabharata  - Birth of Aruna and Vainatheya / Garuda 

Who is  Aruna and how was he born? Why did Aruna curse his mother? Who is Garuda?

The story of Garuda appears in Adiparva of Mahabharatha. 

Sage Kashyapa is the son of Marici and the grandson of Lord Brahma.  The Sage was married to 13 daughters of Prajapathi Daksha.  Kadru and Vinata were among them.

Both Kadru and Vinata were devoted to Sage Kashyapa. Pleased with their devotion, the husband Sage asked them to seek a boon. Kadru sought to bless her to be a mother of 1000 mighty serpent sons. Vinata  asked to bless her to be mother of 2 eagle sons, mightier than that of Kadru's, and the Sage agreed. 

At the designated time Kadru’s 1000 eggs hatched, and serpents were born. Vinata was anxious as her eggs were yet to hatch. Jealousy took over her senses, and in haste, Vinata broke open one egg.  

To her dismay, a half grown eagle, Aruna, was born. He blamed his mother for his plight. He cursed her that she would serve as a slave of Kadru owing to unbridled jealousy. 

Aruna went away to Suryamandala as charioteer to Sun God (son of Sage Kashyapa and his half-brother). Aruna was equally powerful as Sun God. 

Indeed, Aruna could control Sun God's anger as the latter was frequently facing the wrath of Rahu and Ketu.  Arunodaya is the time just before sunrise and immediately after sunset.

Aruna, before leaving, advised his mother, Vinata, to protect the other egg and wait till it hatches. He said the Son born out of it would be very powerful, equivalent to Lord Indra, and help get rid of her slavery. 

What was the contest between Kadru and Vinata?

Once, these two sisters, Kadru and Vinata, went for a walk alongside the seashore. They saw a beautiful divine white horse, Ucchishrava, and admired its beauty. 

Kadru had a grudge against Vinata and desired to take revenge on her. She said “though Ucchishrava appears white in colour, its tail is black”. Immediately, Vinata disagreed and argued against it.

The argument converted into a contest wherein the loser was required to become a slave to the winner. Both agreed to meet at the same place and same time the next day.

Kadru hatched a plan and narrated the issue to  her sons (snakes) and requested them to coil around Uchhistrava's tail and make it appear black. The snakes disagreed and said it was not dharmic. Kadru cursed them that they would perish in King Janemejaya's Sarpa Yaga. 

Adishesha,  the eldest son of Kadru, was disgusted with his mother's attitude. He severed ties with his Mother and siblings and went away to perform tapas. 

Few snakes agreed involuntarily and coiled around Uchhistrava's tail. When Kadru and Vinata met as scheduled, the tail of the horse appeared black, and Vinata had to accept defeat.

Vinata had to undergo humiliation in the hands of Kadru. Just then, the second egg hatched, and Garudamantha was born.

  

Private Equity - Types of Financing

What is Private Equity (PE)?

PE is one of the source of financing for an enterprise. It is an investment in equity of a company that is not listed in a stock exchange. The difference between PE and Venture Capital (VC) is that VC investment is made in the very early stage of a company’s life cycle. VC is a part of private equity.

Concept of PE investment

PE investment is highly illiquid, it needs monitoring, and its price is not driven by the market.

Private Equity Investor (PEI) provides funds to the company and in return gets equity shares. Unlike an equity shareholder of a public limited company who can trade in stock exchange, PEI cannot do so as they are not listed in a stock exchange. Hence, PE investment is highly illiquid.

PEI gets return on investment in the form of capital gains which is directly linked to performance of the company. PEI has to monitor the functioning of the company because these entities are not regulated by regulators. PEI is treated as an insider while banks that provide loans are treated as an outsider.

PE pricing is not market driven and therefore it has to be favourably negotiated with other investor.

What are the benefits of PE investments?

PE investment provides certification, networking, skill transfer, and financial benefits to the company.

Generally, PE investment is based on thorough scrutiny. Access to PE funds certifies that the company is of high quality. PEI has to constantly monitor the working of the company for sustainability and growth. PEI apart from financing provides networking access, and transfers of knowledge and capabilities.

What is seed financing, start-up financing, and early financing?

The first three stages of the company’s life stages are seed financing, start-up financing, and early financing.

Seed financing focuses on Research and development (R&D) of a product/service. Successful R&D generate patents and upon necessary approval they become products. Seed financing follow 100/10/1 rule which denotes that if 100 ideas are screened 10 are selected for funding and ultimately 1 alone would be successful.

In start-up financing stage, PEI provides funds to the enterprise to buy fixed assets.

In early growth financing, financial needs are normally met by banks but if the need is huge it is met by PEI/VC. VCs provide seed, start-up, and early growth financing. PEI provides hands on approach by providing all necessary support for the sustainability and growth of the company.

What is expansion financing, replacement financing, and vulture financing?

Expansion financing is financing the growth process of the enterprise. It can be internal growth in the form of investment in new assets, increase in working capital or external growth through mergers and acquisitions. PEI provides money and if required acts as advisor and consultant.

PEI screen and scout the market, negotiate with potential target and provide funds to venture backed company and receive shares. PEIs also provide legal and taxation related support.

Replacement financing is financing a company that is in matured stage. The deals can be in the form of leveraged buyouts (LBOs), Private Investment in Public Equity (PIPE), and Corporate Governance deal.

In LBOs, the role of PEI is to identify the potential target. The acquiring company creates a separate entity called ‘Special Purpose Vehicle’ (SPV) to raise funds from banks and PEI. Banks provide debt while PEIs provide equity.  SPV’s asset (cash) is utilized to buy Target Company’s equity. These deals can be through negotiation, hostile takeover, or public offer.

PIPE is buying shares of public company and selling it to another buyer not related to the company. These deals are not through stock exchange.

Vulture financing is financing a company when it is in decline stage. It can be for restructuring the business or during distress. PEI provide finance for buying assets such as brand, patent, expensive machinery either to sell or to use them.

 Next, we shall discuss on PE formats.

Option Valuation

Option Valuation

This blog deals with why assets with option characteristics should be viewed distinctly in corporate valuation process.

Assets are generally valued using conventional valuation models such as book value, stock and debt, DCF etc. However, for some assets conventional valuation models may not be appropriate because these assets possess option characteristics and derive their value from it. Assets of pharma, oil producing, and gold mining companies possess such characteristics.

For example, a pharma company may be awaiting patent approval from Food and Drug Administration (FDA) for vaccine that can cure cancer disease. The valuation of the company changes depending upon the approval/rejection of the patent. If it successfully obtains approval its valuation would increases drastically, if not, it remains stable or decreases.

For such companies it is preferable to use option valuation method. In option valuation method the asset is treated as an option contract.

Why an asset is treated as an option contract?

An option contract is a contingent claim wherein the payoff is made only under certain contingency. In the above example, the contingency is obtaining necessary approval from FDA.

The payoffs on call and put options depends upon the value of the underlying asset. The payoff happens when the value of the underlying asset:

·         exceeds a pre-specified value for a call option

·         fall below pre-specified value for a put option

An option variables include strike price, current market price, payoff, and time to expiration.

·         In an asset, investment outlay or cost is considered as strike price, patent life as time to expiration, market price as current value and payoff as future cash flows. If the value exceeds a pre-specified level, the asset is worth the difference, if not, it is worth nothing.

Option premium and DCF valuation model

Discounted cash flow, one of the popular methods in corporate valuation, understate the value of assets with option characteristics. DCF method is modelled on a set of expected cash flows and it does not fully consider changes when faced with real time situations.

For example, oil producing companies may decide to reduce the output of oil supply if the oil price is not at sustainable level (this happened when the oil price went below $30 per barrel in 2015).

By adjusting the output these firms can preserve or protect their valuation. This adjustment is valued in terms of option premium. If DCF model is used option premium so derived is added to DCF value.

Corporate Valuation - Series 1

Corporate Valuation – Series 1

Few assets are alone are purchased for aesthetic or emotional reasons. Rest all ought to create value or wealth for the investor. Financial assets, in particular, are expected to generate cash flows for the investor or the firm.

Is Valuation process a science or an art?

If the valuation process is done as per the model with right inputs it is science. It is an art if the analysts manipulate figures in whatever fashion, to derive at a desired outcome.  Whether it is an art or science the truth lies between these two because of certain factors inherent in the valuation process.  There could be:

Ø  biases that analysts may bring into the process

Ø  uncertainties that may shock the system, process, and the people associated with it

Ø  information overload and technological advancement

What is Fair Market Value of an Enterprise?

Fair market value is the price at which the property would change hands between a willing buyer and a willing seller. Both the buyer and seller are not any compulsion and it is assumed that both the parties are having reasonable knowledge or relevant facts of the enterprise. Corporate valuation is the estimation of fair market value of an enterprise at a given point in time.

Valuation of an enterprise is done for several purposes, for example, when it raises capital from the public or from venture capital and private equity, or during merger and acquisitions, divestures, or to determine the exercise price of ESOPs or during PSU disinvestment.

It is important to note fair market price must be neither too high nor too low. Too high a price relative to the value would result in lower returns to the buyer and cheaper valuation and price makes the seller less wealthy.

How to derive the true value of an enterprise?

To derive the true value of an enterprise we need two things (1) Forecasting of future free cash flows (FCF) of the business or a project accurately and (2) Discounting of FCFs at appropriate discount rate.

Ø  FCFs are post-tax cash flows generated from the operations of the firm after providing for investments in fixed assets and net current assets.

Ø  Discount rate is used for converting the expected future cash flows into its present value. It represents weighted average cost of all sources of capital viz., equity, preference capital, and debt. 

Let’s now learn about various valuation methods. To derive at true or intrinsic value of the firm there are five methods:

        I.            Book value method

      II.            Stock and debt method

    III.            Discounted cash flow (DCF) method

    IV.            Relative valuation method

      V.            Option valuation method

I.                    Book value method considers book value of all assets of the firm as stated in their balance sheet. Book value of the assets, in principal, equals book value of investor’s claim (the sum of equity, preference, and debt capital).

BV of assets = BV of Investor’s claim

This method has some drawbacks.

Ø  Book value items, even if adjusted to reflect fair value or liquidation price, would result in much lesser valuation as compared to market value of the enterprise.

Ø  Also conventional balance sheet does not consider valuation of intangible assets (e.g., human capital, brand equity). This divergence between book value and market value is visible more in service sectors.

 

II.                  Stock and debt method, also known as market approach, uses market value of equity and debt securities of a publicly traded firm to determine the value of the firm. This method relies more on market efficiency, which assumes that the market price of the securities is an unbiased estimate of its intrinsic or true value.

Market efficiency theory states that deviation in market price from intrinsic value are random and uncorrelated. According to this method the total value of the firm is equal to market value of equity and market value of debt.

                                    MV of equity = MV of debt

III.                Discounted cash flow (DCF) method

DCF method considers future cash flows of an asset or project to derive the value of an asset. The future cash flows are discounted to present value at discount rate that reflects the riskiness of the cash flows.

 

Value of an asset   =   E(CF₁)  + E(CF₂) +  ….. E(CF_n)

                                        (1+r)       (1+r)²            (1+r)ⁿ

 

Where E(CF_n) = Expected cash flow in period n

                      r = Discount rate reflecting riskiness of estimated cash flow

                     n = Life of the asset

 

Assets with high and predictable cash flows generally have high valuation compared to firms with low and volatile cash flows. DCF model is popular in M&A transactions.

 

Difference between Asset and Going concern based valuations

In asset based valuation cash flows from all the assets of the firm are discounted to present value. Going concern based valuation is based on the premises that a business, being an ongoing entity, has existing assets (or assets in place) and assets it expect to invest in future (growth assets).

Growth assets create value to the enterprise when the firm makes future investments. Hence, both these assets are considered. Firms with good growth opportunities will have a better valuation if going concern valuation method is used as against asset based valuation.

 

DCF Valuation Models

A.      The enterprise valuation model values the business in entirety with both assets in place and growth assets. It has two components, Free Cash Flows to the Firm (FCFF) and cost of capital

Ø  FCFF is the cash flow available for distribution to all investors after meeting the capital expenditure and net working capital needs of the firm.

Ø  FCFF is discounted at cost of capital, which reflects the composite cost of financing from all sources of capital.

 

B.      The equity valuation model considers Free Cash Flows to Equity (FCFE) and discounts the same at cost of equity.

Ø  FCFE is the cash flow available for distribution to equity shareholders after the firm has met its obligations towards other investors (debt  holders and preference shareholders) and provided for its capital expenditure and net working capital needs.

Enterprise valuation considers FCFF and cost of capital while equity valuation considers FCFE and cost of equity.

 

C.      The excess return valuation model segregates cash flows into two segments, the normal return cash flow and excess return cash flow. Any cash flows above normal return is categorized as excess return cash flows. Excess return can be either positive or negative.

Value of the business = Capital invested in firm today + Present value of excess return cash flows from both existing and future projects.

 

D.      The Adjusted Present Value Model separates the effect on value of debt financing from the value of assets. The reason is debt creates tax benefits (interest expenses are tax deductible) on the positive side while on the negative side it increases bankruptcy costs.

Value of the business =   Value of business with equity financing alone + Present value of expected tax benefits of debt – Expected bankruptcy costs

Dividend discount model uses dividend as cash flows and these cash flows are discounted at cost of equity.

 

IV.                Relative Valuation Method

It is based on the premises that similar assets should be traded at similar prices. This model is popularly used in realty sector. This model is also used for pricing of initial public offerings (IPOs).

A company approaching for an IPO can be compared with any other peer company that are public traded. Difference that may arise are adjusted but these controls are generally subjective.

                                   V_T = X_T (V_C/X_C)

Where V_T is the appraised value of the target firm

X_T is the observed variable

V_C is the observed value of comparable firm

X_C is the observed variable for comparable firm

 

 

V.                  Option Valuation Method

This method uses valuation of a financial option. A financial option is an agreement in which the option owner enjoys the right to buy or sell a security without an obligation to do so. To enjoy this right the option owner has to pay a premium. Similar to DCF valuation this method uses estimation of expected future cash flows and these cash flows are discounted at appropriate discount rate. Estimating cost of capital is very difficult because the value of underlying asset (stock) changes constantly.