Your Stock Queries

GUJARAT MINERAL DEVELOPMENT CORPORATION

I wish to purchase 250 shares of Gujarat Mineral Development Corporation at the current market prices. Please advise whether this is the right price at which to enter the counter.

- Ajay Warandani, Via Email

Gujarat Mineral Development Corporation (GMDC), BSE/NSE Code 532181/GMDCLTD, with a face value of Rs 2, is currently trading at Rs 188. Its 52-week high/low are Rs 213 and Rs 133 respectively.

GMDC engages in the development of mineral resources in India. Its products include lignite, bauxite, fluorspar, manganese, base metals, silica sand, limestone, bentonite and calcined bauxite. It also engages in the generation of thermal power as well as wind power. The company was founded in 1963, and is based in Ahmedabad.

GMDC’s performance for nine months ended December 2011 has been quite decent. The topline witnessed a growth of 15 per cent on a YoY basis, and stands at Rs 1095 crore as against Rs 951 crore for 9MFY11. The bottomline, however, witnessed a better growth of 25.23 per cent YoY, and stands at Rs 328 crore for 9MFY12 as against Rs 262 crore for 9MFY11.

On the valuations front, the stock discounts its trailing 12-month earnings by 13.30x and the EV/EBITDA stands at 8.59x. These valuations look a bit expensive when compared to those of NMDC and Sesa Goa, which trade at a P/E of 8.34x and 5.33x respectively. The company has very little debt of Rs 133 crore as of FY11, which translates into a debt-to-equity ratio of merely 0.08x. However, keeping the valuations in mind, we believe that this is not an opportune time to enter the stock. We suggest that you avoid the counter at this point of time and decide once the FY12 results are announced.

VIKAS WSP

Is this the right time to enter the Vikas WSP counter? Please guide me.

- Ravina Devi, Satna, Madhya Pradesh

Vikas WSP, BSE Code 519307, with a face value of Rs 1, is currently trading at Rs 71.85. Its 52-week high/low stand at Rs 76 and Rs 9 respectively.[PAGE BREAK]

Vikas WSP engages in the manufacture and supply of guar gum powder and its derivatives, primarily to the food industry in India. It also offers guar gum for various applications, such as pet food, oil drilling and fracturing, textile printing and paper making.

The company’s performance for the nine months ended December 2011 has been pretty low key. The topline witnessed a growth of 29.88 per cent on a YoY basis, and stood at Rs 515 crore as against Rs 396 crore for 9MFY11. The bottomline, however, witnessed de-growth of 12.52 per cent, and stood at Rs 83.52 crore for 9MFY12 as against Rs 95.47 crore for 9MFY11. This decline in its bottomline can be attributed to the increase in raw material prices, employee expenses and interest outgo, which went up by 24 per cent, 66 per cent and 30 per cent respectively.

On the valuations front, the company discounts its trailing 12-month earnings by 8.94x and the EV/EBITDA stands at 5.49x. In view of the valuations, this does not look like an opportune time to enter the stock. We suggest that you avoid the counter at this point of time and take a decision once the FY12 results are announced.

GEODESIC

I have purchased 2500 shares of Geodesic at Rs 86 per share. What should my next course of action be?

- Tanay Sharma, Bhagalpur, Bihar

Geodesic, BSE/NSE Code 503699/GEODESIC, with a face value of Rs 2, is currently trading at Rs 48.40, which is at a 43 per cent discount to your acquisition cost. Its 52-week high/low stand at Rs 94 and Rs 39 respectively.

Geodesic provides software products and related consultancy services globally. Its communication and collaboration products include Mundu IM, which provides multilingual text and multimedia messaging on various mobile platforms. Geodesic serves various market segments, including financial services, telecom operators, mobile device manufacturers, education, state and central governments and enterprises.[PAGE BREAK]

On the financial front, the company’s performance for 9MFY12 has not been very impressive. The topline grew by 15 per cent on a YoY basis to Rs 727 crore as against Rs 636 crore for 9MFY11. The bottomline, however, witnessed a decline of 16.74 per cent to Rs 209 crore against a profit of Rs 251 crore for 9MFY11. The stock discounts its trailing 12-month earnings by 1.44x, which is much cheaper as compared to its other listed peers. It offers a dividend yield of 5.63 per cent, which is also good. The company’s bottomline, however, has failed to post any signs of improvement, and has shown a declining trend for the last three quarters. Therefore, we suggest that you exit the counter.

RUBY MILLS

I am holding 200 shares of Ruby Mills purchased at an average price of Rs 500 per share around two years ago. Should I continue to hold the stock or sell it at the current levels?

- V T Abraham, Kerala

Ruby Mills, BSE/NSE Code 503169/RUBYMILLS, with a face value of Rs 10, is currently trading at Rs 740, which is at a 48 per cent premium to your acquisition cost. Its 52-week high/low stand at Rs 1177 and Rs 595 respectively.

Ruby Mills, a composite textile mill, engages in the manufacture and sale of yarn and fabrics in India. The company offers cotton, woven and blended fabrics as well as cotton, blended and synthetic yarn. It is also involved in real estate development activities. Its Dadar unit is into the spinning, weaving, processing and printing of textile fabrics. It has 22000 spindles and an installed capacity of 40000 meters of woven fabrics and eight tonnes of tubular knitted fabrics. The Dhamni unit is located 70 km south east of Mumbai, has 18000 spindles and is among one of the most modern spinning units.

The company’s performance for the nine months ended December 2011 has been rather muted. The topline witnessed a growth of 28.26 per cent to Rs 125 crore as against Rs 98.02 crore for 9MFY11. The bottomline witnessed a growth of merely 2.44 per cent to Rs 44.06 crore as against Rs 43.01 crore for 9MFY11. This flat bottomline growth can be attributed to an increase in raw material prices (up by 21 per cent) and employee expenses (up by 40 per cent). The company has a high debt of Rs 490 crore and its debt-to-equity ratio stands at 3.22x, which is not at all welcome at this point of time. On the valuations front, the stock discounts its trailing 12-month earnings by 5.23x and the EV/EBITDA stands at 7.72x. At this juncture, we suggest that you book full profits in the counter as the high debt may play spoilsport going forward.