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IS THE SENSEX A
BAROMETER?
GREAT SERVICE FOR RETAIL
INVESTORS
Ms.Ugale wrote to us on 6th October,
2007 and we advised her on what she could do in this situation. We also wrote
to Subhash Projects on her behalf. We received a second letter from her on 16th
October. Here is what she says -- Editor
I have no words to thank you for your advice and active action in resolving my
problem for now at least. I have received the dividend declared in Sept 2007;
and hope to get the dividends declared in earlier years and also start getting
the Annual reports and dividends declared in future. The company is performing
well and after they have entered the Infrastructure segment, the stock price
has gone up a lot. Thanking you once again, with best regards,
RUNNING WITH THE BULLS
A SUGGESTION
Our stock picks are based on a model and from time to time this has thrown
up unusual stocks, which have previously been featured even as cover stories.
In fact, the Street Beat section of this issue also has four stocks that have
not been part of the bull run, but have interesting fundamentals and could be
considered contrarian calls.- Editor
ELPRO INTERNATIONAL:
CHEATING THE MINORITY
The company claimed lack of
opportunities in the existing business line as the reason for the capital
reduction; however, it recently sought shareholders’ nod for increasing
its borrowing limit from Rs100 crore to Rs500 crore. Isn’t this
curious?
We also have doubts about the
valuation for arriving at the exit price.
Elpro has an investment of approximately Rs70 crore in MetLife Insurance
Company, which translates to a 10% stake in the company. In the past two years,
private insurers have been re-rated in the light of the growth potential within
the sector. Yet, Elpro has opted to reduce the value of its investments in
MetLife Insurance and renounced the rights offered at par in favour of a
promoter group company called Faridabad Investments. Elpro’s stake in
MetLife can be valued at anywhere between Rs96.7 crore-Rs129 crore (assigning a
Net Business Achieved Profit multiple of 15x-20x on FY09E premium). This
translates into per share value of Rs273-Rs363 on the current equity capital of
35.6 lakh (3.56 million) shares. On the reduced capital, the valuation will
shore up further by 25%.
TRADING PLACES
HOW TO REACH US
Please refer to “A new bull market” (MoneyLIFE, 11 October 2007). It is
human greed to make easy money that is resulting in a soaring Sensex, and it
will continue this way for ever! The real worth of a company, in most cases, is
much below its share price at the stock exchange. The stock market is, in fact,
being manipulated by stock brokers and those who play satta in shares. The
Sensex is not a barometer of economic development and prosperity. Moreover, the
accumulation of wealth from shares is unproductive activity, because it does
not contribute to the nation’s wealth. Generally, share prices of only a
few select companies determine the overall Sensex. How then can it be called a
true index of the progress of the country or the barometer of our economic
health? Apropos of “Benefits of Tea” (MoneyLIFE, 25 October 2007),
I’d like to state that tea reduces fatigue and refreshes a person. While
travelling, it is the most important drink to make one fresh! It is a fact that
“61% of women drink tea as opposed to 51% of men in US”. Drinking tea is
a good pastime. It is customary to offer tea to guests. Also, it lowers the
chances of heart problems! Last tip: in scorching heat, if you are tired,
drink a cup of hot tea to reduce fatigue and be fresh!
Mahesh Kapasi, B-49,
Gulmohar Park, New Delhi-110 049
MoneyLIFE is doing a great service in advising retail investors and also
helping solve their problems. Otherwise, nobody is bothered about retail
investors. I am glad I subscribed to your magazine. I purchased 200 shares of
Subhash Projects and Marketing in 1995. I do not get annual reports and
dividends, though my address has not changed. I sent them a photocopy of my
holdings and complained about non-receipt of annual reports and dividends. I
got a telephone call from the company telling me that dividends and annual
reports are sent to me regularly, but they are not giving it in writing. I have
written to SEBI and also to Investor helpline and, as a last resort, I am
writing to you to advise me and to let me know how to approach MoneyLIFE
Foundation. I heartily congratulate you and appreciate your efforts to help
investors to the best of your ability in such circumstances. Please continue
the efforts for which investors will bless you.
Mrs Sarojini Ugale,
Kirloskar Hospital, Bashir Bagh, Hyderabad, 500063
Mrs Sarojini Ugale
Thank you for your analysis of Godawari Power and Noida Toll Bridge. Your
recent review of Malar Hospitals and Ramakrishna Forgings also looks
interesting. I recently came across Jamna Auto, which I think can be your cover
story. Clearwater Capital Partners are turnaround experts. They were
responsible for the turnaround of Diamond Cable. The stock of Diamond Cable was
Rs55 when they got involved, today it is trading at Rs360. Jamna Auto is at
Rs40-42 level and according to my analysis, assuming there is no dilution of
equity in the next few years, the stock may quote at Rs350-400. Are there other
companies in which Clearwater is active?
Many brokerage firms came out with a ‘Buy’ recommendation on Bartronics.
I have personally held the stock for a very long time since I did not receive
the annual report. R Balakrishnan’s analysis was an eye opener for all of
us. But, in a bull market, everybody wants to run with the bulls. I remember
the past when Vikas WSP, HFCL, Pentamedia and DSQ Software were projected as
multi-baggers. Vikas WSP has a world record of declaring results on the first
day after every quarter. But the retail investors lost money in that stock, not
the brokers who recommended it. You should come out with more of such analyses
which will alert small retail players. I am an active reader of MoneyLIFE and
proud of our team.
Santosh Mhamunkar by
email
Please recommend a few scrips based purely on contra theory. These prove to be
multi-baggers and very long-term investors are interested in such scrips.
Irshad A Khan,
NAGPUR,by email
We are a stock broking firm catering to retail, HNI, corporate and
institutional clients. A few of our clients are aggrieved over a decision of
Elpro International, which is going for a capital reduction programme only for
minority shareholders. The scheme will immensely benefit the promoters,
although indirectly. We want to take this issue up with various authorities and
would also like to seek your assistance in drawing attention to the case and
the postal ballot notice.
Elpro International passed a Special Resolution in January 2006 (through postal
ballot) to reduce its capital by 25% at a price of Rs183 per share. However,
this does not reduce capital across categories, but is actually a way of giving
an exit to minority shareholders with small shareholdings.
The company cites mismatch in its assets and liabilities as the reason for the
capital reduction. It also mentions that surplus cash generated through the
sale of one of its isolators division to Siemens at Rs25 crore would be
utilised for capital reduction. The decision has apparently been arrived at
after exploring various options and a 10% premium to the ruling market price of
Rs166.5 (as on 25 January 2006) was offered to investors. However, detailed
analysis shows a different picture of what otherwise looked like a decent
decision.
Firstly, it is unfair that the
capital reduction is only to eliminate minority shareholders, otherwise it
should have enhanced shareholder value by doing it across the board.
In addition, Elpro intends to develop surplus lands where it has no operations
- for instance, Chinchwad, Pune by utilising around 20 lakh Sq ft of property.
The revenues from the project are estimated at as much as Rs300 crore.
Taking all these factors into account, the value of Elpro shares should be over
Rs650-700 per share. The current market price of the stock is around
Rs350-Rs375. The exit price of Rs183 per share offered to minority shareholders
is far too little and the company must be asked to go for a reverse delisting
which will allow minority shareholders a say in determining a fair exit price.
Sejal Doshi, FinQuest
Securities (P), Mumbai by email
Every newspaper and magazine provides a plethora of information about stocks
and mutual funds. However, we hardly come across any information on the stock
exchanges themselves, where all the action happens. Can we have an article on
the advantage and disadvantage of trading on the National Stock Exchange or the
Bombay Stock Exchange in a comparative sense?
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