Markets continue to be highly volatile. Stock specific movements have also become like a pendulum. HDIL raced ahead to Rs. 150/- in few days from a low of Rs. 80/- and has fallen back to same levels. DLF also went up again in few days from Rs. 190/- to Rs. 300/- and has already now retraced to Rs. 170/- level. There are many factors for this volatility. Firstly, electronic and print media is mainly dominated by Chartists who are advising about timing entry and exit. For them, share market has become a casino and as per them, stock prices are based upon trading statistics and not fundamentals/economics. Secondly, there is more big element and speculation. Even in cash market, delivery ratio varies from 5% to 40% which proves that day traders buy and sell within the same day. It means, investors are using the market just to punt. Further, even delivery is backed by margin funding. Thus, 70% - 80% trades of the market are not backed by actual wealth of investors/traders. Thirdly, out of the total value of trades done, more than half is in the derivative segment. Within this portion also, Futures trading takes major share. Per se, derivative is a necessary evil in the market but, complete domination of derivatives/intraday trading scares away genuine investors.
1) Ispat Industries Rs. 10/-: Earlier, this writer had raised strong objections for including this scrip in F&O as credentials of the promoter are suspect and company has disappointed since inception. Promoters have been main beneficiary by inclusion of this company in F&O as they managed to rig up the share price and sell big chunk of their holding at high high price. Now, for Q3, its sales have crashed to 1123 crs. as against 3223 cr. sales in Q2. Net loss is massive 976 crs. Promoters stake has come down by 4.80%. It is high time that stock exchanges decide to remove such a rotten group from F&O.
2) Adlabs Ltd. Rs. 170/-, Rs. 5/- F.V.: Company has made loss of 25 crs. in Q2. Share price is ruling high due to promoter fancy and speculator's favourite counter. Fundamentally, scrip should not be more than Rs. 25-30. If, scrip is removed from 'A' Group, share price will tumble. Sell.
3) After Satyam scan, many other companies which have been busy in bogus figures will be more cautious, and such companies may show declining nos. in coming quarters. Such a trend is already visible.
4) Rajesh Exports Rs. 27/-, Re. 1/- F.V.: For Q3, topline has gone upto 2732 crs. but net profit has crashed to 17 crs. as against 61 crs. Staff cost is just 2.29 crs. which is less than 0.1%. I wonder if, how many companies can achieve such a feat? Even other expenditure is just 6.22 crs. (which normally includes administrative, selling, distribution, petty cash expenses). This again works out to just 0.22% of sales. A miraculous feat!.
Many promoters get their companies listed at stock exchange to make a killing in stock market. Promoters stake in Rajesh Exports has gone down by 7%.
5) Reflex Rs. 24/-: Few months ago, when its share prices had gone upto Rs. 200/-, we had pointed out that promoters were borrowing money from the market to rig up the share price. Now, promoters stake has already come down by 7%. It sums up the whole story. Since promoters devote more time for stock market operations, company suffers. Company has made big loss of 4.56 crs. for Q3. May be, funds given to the borrower siphoned off from the company.
6) BHEL Ltd.: It is a very respected company and a giant in the sector globally. Company has been providing good results. However, this writer, has a point. For Q3, its topline has gone up by nearly 800 crs. But, PAT is up only by 19 crs. Although everyone will blame higher R/M cost but, employee cost has also gone up by 174 crs.
7) From time to time, this column brings to the notice many companies which are suspected of bogus billing and money laundering. Some of these companies do not pay any dividend although, have huge EPS. When this writer asks promoters about it, they give standard excuse that company needs funds for expansion and will also invariably say that even Warren Buffet does not pay dividend. Promoters don't want to pay dividend, but do they forego their hefty salary, business/first class air travel, 5 star hotel comforts and all other vulgar expenses? Mr. Warren Buffet lives in the same old house which he bought in 1961 and still draws the same salary. Such promoters don't deserve to even bring on their lips name of Warren Buffet.
Further, these companies mainly show income from exports but have no losses of forex/derivatives. Strange!.
However, main regret is that, even big analysts and big FIIs do not however bother to think whether such profit figures are possible? Investment banking arms of brokerage houses (in their greed to earn fat fee) push their analysts to release Buy reports on such companies, a pre-cursor to fund raising. This writer has no hesitation in saying that a large portion of investment bankers have no qualms of business integrity and morality.
8) Sunil Hi-tech Rs. 80/-: Despite FII taking stake at Rs. 360/-, share price has crumbled. This writer got money calls that I should buy this scrip. However, looking at declining share price, this writer got suspicious that some bad news is on the way. Now, Q3 results show that company has made a loss of nearly 15 crs. by investing in mutual funds. It is really strange that promoters do not stick to core business and take public money for a ride. It happens when FIIs give money to the rotten promoters which they don't deserve. It is like an infertile woman getting 5 kids.
9) Pyramid Symira Rs. 25/-: One year ago, this writer had recommended to sell at Rs. 300/- when everyone was recommending to buy. Now, one after another, cans of worms keep on opening. Company alleges to have made loss of Rs. 75 crs. in share market. This writer is dumb struck to make any comments about this promoter.
10) Zenotech Laboratories Ltd. (Rs. 98/-): Floated by a former Honcho of a big Hyderabad based pharma company, investors had high hopes from this company that success of that big pharma company will be replicated in Zenotech. Such hopes became more alive when Ranbaxy acquired big stake in the company. However, performance of the company so far has been absolutely abysmal as is evident from trailing 4 quarters:
| Sales (cr.) | 1.53 | 2.77 | 0.67 | 1.55 |
| Loss (cr.) | - 3.47 | - 2.67 | - 6.65 | - 3.77 |
| Equity | 34.42 | - | - | - |
Loss in each Quarter is more than the sales. Turnover in TTM is less than 7 crs. Fundamentally, scrip should be quoting below par. Now, Japanese company is making open offer at Rs. 113/-. However, promoter is crying foul that it should be at Rs. 160/-. He wants highest reward for worst performance of pharma industry! Hats off to his cheek. Stake by a renowned company does not necessarily mean strong fundamentals of the company. Ranbaxy had acquired stake in Krebs and Jupiter Bio and still, performance of both companies is much below expectation and their share pricess are significantly lower than acquisition cost of Ranbaxy. There are companies like; J.B., Unichem, Torrent Pharma which have decades of proven performance and still available at P.E. ratio of 4-5.
11) Shree Ashtvinayak Rs. 500/-: For 07-08, company had reported topline of 94 crs. and PAT of 12.63 crs. EPS worked out to 12.63. Scrip is available at P.E. Ratio of 40/-. In current meltdown, scrip has come down by just 20%. Reportedly, scrip is in the grip of a strong operator as company wants to place shares with some FII at Rs. 550/-. Fundamentally, grossly overpriced.
12) Minda Industries (Rs. 98/-): For 07-08, company had reported PAT of 15.72 crs. on 396 cr. turnover. Equity is Rs. 10.50 crs. Although, company has been maintaining average performance, last year its share price zoomed to Rs. 358/- as a Mumbai based operator was colluding with promoter for placing shares with a leading DI @ Rs. 350/- per share. As per our sources, deal was in the final stages of being struck when company was making presentation to the investment committee of DI, chairman of the committee asked the officer of the company about his holding in the company and the officer replied that he already sold his 15,000 shares @ Rs. 250/-. This innocuous but truthful reply of the officer torpedoed the placement deal and subsequently share price has crashed to its original reasonable levels.
13) Winsome Textiles Rs. 37/-: Despite heavy losses, share price continues to rise. For Q3, losses have increased to 5.35 crs. Quarter 3 EPS is -9.10 (negative). Q3 interest charges are more than 5 crs. For 9 months, EPS is -15.42 (negative). On a small capacity of 63,000 spindles, company has huge debt. In the past, we had pointed out that how some operators take convertible warrants by paying 10% and then rig up the share price. This is what is happening in Winsome Textile. Fundamentally, scrip is worth Rs. 6-7.
14) Geojit Rs. 23, Re. 1/- F.V.: For Q3, company has made a loss of Rs. 1 cr. Short term prospects remain bleak. Scrip is highly overpriced. Sell and buy FDC Ltd. in its place.
15) Religare Enterprise Rs. 340/-: Scrip is trading at 26 x FY08 EPS. Short term prospects of the industry are dismal. Sell and buy Gujarat Gas Ltd. in its place for better appreciation.
16) WWIL Rs. 18, Re. 1/- F.V.: Company has again reported big loss for Q3. Losses for 9 months are 75 crs. on Equity of 22 crs. Still, share price went up by 80% in 2 days. It shows that operators can do what fundamentals cannot.
by HK Gupta