Wednesday, March 22, 2006

What a tip !!!

A friend called up this evening to discuss a tip he received from his broker - Buy Ramco Systems. The reason being - the stock is at it's 52-wk low of 193 rupees and it's 52-wk high was a huge 519 rupees. He said, the stock had mighty upside as buying levels will increase. I checked out the numbers and was absolutely taken aback with the financials. Enjoy this !!!

a) The company has been in the red for six out of the last eight quarters
b) The P&L account of the company shown a loss for the last 4 financial years
c) Personnel expenses account for 40% of the total sales of the company
d) No dividend for the last 5 financial years (obviously)

But that's not the shocking part ....

Check the prices over these last eight quarters. I have taken the highest price within one month of the close of quarter (these are the times when the financial statements come out)



Mar-04: Profit of 4.21 crs; Price was 265 rupees
Jun-04: Loss of 9.29 crs; Price was 250 rupees
Sep-04: Profit of 2.32 crs; Price was 290 rupees (the price increased while profits dipped)
Dec-04: Loss of 3.36 crs; Price was 440 rupees (the price increased while profits dipped)
Mar-05: Loss of 30.04 crs; Price was 425 rupees
Jun-05: Loss of 6.03 crs; Price was 405 rupees
Sep-05: Loss of 7.11 crs; Price was 450 rupees (the price increased while profits dipped)
Dec-05: Loss of 3.68 crs; Price was 330 rupees

From 13-Sep-2005, when the stock reached a high of 546.70 rupees ... it has been steadily declined and it today (22-Mar-2006) at 194.25 rupees. A decline in value of 64.46% in a little over 6 months. Amazing tip, aint it?

10 Comments:

Blogger Prasanth said...

Ramco has been hemorrhaging talent for quite some time now and i keep hearing about them loosing existing customers.

9:33 AM  
Blogger Amol said...

Shankar,

Any views on Deepak Fertilisers ?
http://www.geojit.com/profiles/quarterly.asp?index=1,%201&pageOpt=7&code=135&a=7#

I had read a article in Sharekhan which recommended this stock.
But The NCA shown for Mar05 is
-ve.

Any views on the same ?

-Amol.

11:21 AM  
Blogger Shankar said...

Hi Amol,

I have tracked Deepka Fertilizers before. Some stats
1. Decent dividend yield of 3.33%
2. Negative NCAV but then, it has some liquid investments worth around 80 crores. The NCAV would come to zero. So you dont have margin of safety.
3. On earnings capability ... the company had a profit of 79.75 crs last yr. This yr the going has been a bit tougher and I think the closing will be at 55 crs only. Thats a P/E of 14.46.
4. While checking the balance sheet, I found that the CA have actually from LY, which is strange.
5. Growth in sales is rather marginal and there is a visible drop in profits.

It's only because of pt 3&5 that I have not invested in this stock yet.

But it has decent traction. But seems to have a greater probability of falling (though not much) at the moment.

Please chk the same at your end, and lets discuss this.

12:50 PM  
Blogger Amol said...

Shankar,
Please find some more analysis on deepak fert by a share portal.

1. 'Ishanya' mall to begin in 2Q06.
2. Expansion plans Rs.400 cr. in ammonium nitrate business w/o equity dilution, but i think that wud be in 2007.
3. Low Debt/Equity ratio.

But you are right, results for 2005-2006 wont be impressive and chances are it will fall temporarily. I think the right time to pick it up would be after a slight correction e.g. if it goes below 80. The 2007E EPS is 17.
This would result in the stock moving up sharply in 2007.
I agree to what you said, should not buy at the moment, but a stock worth keeping a watch. Can pick up it up later and hold till 2007 end.

I am holding this stock since it was as 70. I sold half of it when it touched 110. I am planning to buy more if it falls below 80.

-Amol.

10:23 AM  
Blogger Amol said...

Shankar,
You mentioned that deepak would have a profit of 55cr. But the PAT for all 3 Quarters as per geojit is as follows:-
Jun05 - 22 cr.
Sep05 - 14.5 cr.
Dec05 - 16 cr. Total : 52 cr.

I checked the past 3 years statements and observed that in 4Q, they declare max. profits. Its been above 25 cr. for all 3 years. I feel the years profit should go above 75 cr. and EPS will remain above 8 for 05-06.
Let me know your comments on the same.
If the stock moves above 110 it could become temp. overvalued. Above that level it could be better to sell. The 2007E is 17 but there is time for that. We could buy again when it becomes better valued.

-Amol.

10:46 AM  
Blogger Shankar said...

Hi Amol,

My mistake, the profit expectation should be higher at around 68 crs for the year. At this rate, my PE calculations come at 11.70. Totally agree with you, a price of 75-80 rupees would make the stock a good buy.

One area which I want to discuss is on -

"Expansion plans Rs.400 cr. in ammonium nitrate business w/o equity dilution" would mean DEBT. The company has minimal cash in it's coffers. At 400 crs of debt (at interest cost of 9%) ... the outflow interest cost is 36 crs per year. This means the profitability will take good hit. The mkt would respond by further reduction in the price (maybe even below the 60 rupee mark) as it it may not account for further cash flows which would come from 2008 onwards.

Please check if the report has taken this into account. If not, then you might have to use the specs in a DCF financial model.

Warm regards
Shankar

11:13 AM  
Blogger Amol said...

Shankar,
You are right, no equity dilution would mean debt. There would be a debt of 265 cr. and 135 cr. would come from internal accruals. This announcement was made in Oct05 and this plant will take 24 months to complete i.e in Oct2007. Thus further cash flows would only come after Oct 2007. The outflow interest cost at 10% could be 25-26 cr.

The following capex plans which are almost in a stage of completion, say within 3-5 months from now would generate cash flow.
1. isopropyl alcohol (IPA) capex 150 cr.
2. Ishanya capex 100 cr.
Dont have any idea how much cash flow these businesses will generate.
As you said The profitability could take a hit in 2006-2007.

Regards,
-Amol.

11:58 AM  
Blogger sunil kumar said...

Hello,
I am a salaried person and started investing in stocks since feb 2005. Presently, i have Gail, Ranbaxy, Wockpharma, IGL, VarunShip, DaburPharma, BirlaEricsson, NTPC, Petronet, NDTV, MSPSteel & RicoAuto. I invest a little amount about month hence the list has become so long. Please guide.
This time I have been advised to buy TFCI at around Rs.13 @52-wk low. It has EPS of 2.11 and for last 3 years shows around 26-28 cr profit in the 4 Qtr. Please give ur views.
Thanks with regards,
Sunil

12:35 PM  
Blogger Shankar said...

Hi Sunil,

TFCI is a penny stock. On an average, the company earns a little over 1 crore per year in net profits.

Advise not to take this stock. It may go up / may go down. But the truth of the matter is .. you dont know. Take it like Dravid coming down to the pitch with Flintoff for the toss. The only advantage that Rahul has is that his family astrologer has told him that his saturn is in the 8th house and he has a good chance of winning the toss.

Question for you - would you put your money on Dravid winning the toss. Please remember - "its better to be approximately right than being precisely"

Rgds, Shankar

11:47 PM  
Blogger Amol said...

More news on Deepak

http://www.business-standard.com/smartinvestor/storypage.php?chklogin=N&autono=220447&lselect=8&leftnm=lmnu6&leftindx=6

Deepak Fert: Expansion on the cards

Asit C Mehta Investment Intermediaries, initiating coverage on Deepak Fertilisers and Petrochemicals, recommends a ‘buy’.

The report states that the company is setting up a 70,000 tonne a year facility for producing IPA (isopropyl alcohol), which will be commissioned by May 2006 and is expected to add more than Rs 200 crore at full capacity utilisation.

The company is coming up with Ishanya, a B2B (business-to-business) speciality mall at a capital expenditure of Rs 110 crore and is expected to garner Rs 25 crore a year. The mall is slated to open by July 2006.

The company operates in the business of bulk chemicals with integrated manufacturing facilities at Pune. Its business can be categorised into two segments — industrial chemicals and fertilisers.

The plant near Mumbai produces industrial chemicals such as methanol, ammonia, various grades of nitric acid, ammonium nitrate and liquid carbon dioxide.

-Amol.

11:14 AM  

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