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Portfolio Guide - Your stock queries answered

| 1/2/2012 6:15 PM Monday

PAREKH ALUMINEX

I have 100 shares of Selan Exploration Technology purchased at the rate of Rs 407 per share. What should I do with these?
- Nayan Sheth, Via Email

Parekh Aluminex, BSE/NSE Code 532606/PARAL, with a face value of Rs 10, is currently trading at Rs 174. This is at a 40 per cent discount to your acquisition cost. Its 52-week high/low stand at Rs 381 and Rs 170 respectively.

Parekh Aluminex manufactures and exports aluminum foil containers, rolls and lids in India. The company’s products are primarily used in the area of food packaging, as well as for food and related items. It serves airlines, railways, fast food chains, restaurants, households, hotels and bakeries. The company exports its products to approximately 30 countries, including the United States.

On the financial front, the company has performed well for H1 FY12. The topline witnessed a growth of 39 per cent on a YoY basis, and stood at Rs 608 crore as against Rs 435 crore for H1 FY11. The bottomline witnessed a growth of 16.66 per cent on a YoY basis for H1 FY12, and stood at Rs 37.89 crore as against Rs 32.48 crore for H1 FY11. Its long-term growth too has been quite encouraging, wherein over the last three years its topline grew at a CAGR of 44 per cent, while the bottomline was up 37 per cent during the same period. The stock discounts its trailing 12-month earnings by 3.32x and the EV/EBITDA stands at 4.46x.

The debt-to-equity ratio stands at 1.46x. The dividend yield of the company is also healthy and stands at 2.04 per cent. At present, we suggest that you hold on to the stock.

TATA COMMUNICATIONS

I have been holding 500 shares of Tata Communications purchased at Rs 250 per share. Please advise whether I should hold or sell at the current levels.
- Palash, Via Email

Tata Communications (TCL), BSE/NSE Code 500483/TATACOMM, with a face value of Rs 10, is currently trading at Rs 211, which is at a 15 per cent discount to your acquisition cost. Its 52-week high/low are Rs 269 and Rs 167 respectively.

The company is engaged in providing integrated communications services worldwide. It operates a network of approximately 41000 route kilometers for domestic long distance services in India and international networks with coverage in approximately 200 countries and territories.

On the financial front, the company looks to be under pressure. Its topline witnessed a growth of 13.44 per cent for H1 FY12, and stood at Rs 6630 crore as against Rs 5845 crore for H1 FY11. It reported a loss of Rs 383 crore for H1 FY12 as against a loss of Rs 484 crore for H1 FY11. There has been a steep increase in the interest cost for H1 FY12. This was up by 67 per cent on a YoY basis, and stood at Rs 457 crore as against Rs 272 crore for H1 FY11.

The debt-to-equity ratio of the company stands at 2.36x, which is quite high and certainly not encouraging. Its EV/EBITDA stands at 9.66x. From the current scenario, TCL seems to be reeling under pressure and hence, we advise you to exit the stock even at lower levels.

SELAN EXPLORATION TECHNOLOGY

I have 100 shares of Selan Exploration Technology purchased at the rate of Rs 407 per share. What should I do with these?
- George M, Kerala

Selan Exploration Technology (SELAN), BSE/NSE Code 530075/SELAN, with a face value of Rs 10, is currently trading at Rs 233, which is at a 42 per cent discount to your acquisition cost. Its 52-week high/low stand at Rs 410 and Rs 231 respectively. SELAN has been engaged in oil exploration and production since 1992. It was amongst the first private sector companies to have obtained rights to develop three discovered oilfields situated in the state of Gujarat, viz. Bakrol, Indrora and Lohar, all with proven oil and gas reserves. SELAN was subsequently awarded two more fields in Gujarat, viz. Ognaj Oil field and Karjisan Gas field. All the oil and gas blocks have a well laid out infrastructure.

The company has a development plan for the drilling of additional wells in these blocks in the next three to five years. This plan is intended to be executed in a phased manner and would involve large capital expenditures, to be funded through a combination of external borrowings and internal accruals. The financial performance for H1 FY12 was pretty good. Its topline witnessed a growth of 24.55 per cent on a YoY basis, and stood at Rs 44.39 crore as against Rs 35.64 crore for H1 FY11. The bottomline witnessed a growth of 23.87 per cent on a YoY basis, and stood at Rs 21.90 crore as against Rs 17.68 crore for H1 FY11.

The stock discounts its trailing 12-month earnings by 11x and the EV/EBITDA stands at 6.40x. Another fact that needs to be highlighted is that the company being in a capital intensive industry, has a very low debt-to-equity ratio of 0.22x. Its dividend yield stands at 1.21 per cent. To hold stocks from the oil and gas sector, one needs to have a long gestation period in mind. Therefore, we suggest that you hold the stock from a long-term perspective.

PACIFIC COTSPIN

I have 6000 shares of Pacific Cotspin purchased at Rs 3 per share. What should I do?
- Siva Kumar, Via Email

Pacific Cotspin, BSE Code 531118, with a face value of Rs 10, is currently trading at Rs 1.52, which is at a 49 per cent discount to your acquisition cost. Its 52-week high/low are Rs 5 and Rs 1 respectively.

The company is engaged in the manufacture and export of cotton yarn in India. It produces mercerised tubular knit fabrics and narrow woven elastic trimmings. The company also provides various financial services, including merchant banking.

Pacific Cotspin’s topline witnessed de-growth of 69 per cent for Q1 FY12, and stood at Rs 12.5 crore as against Rs 40.47 crore for Q1 FY11. It reported a loss of Rs 10.57 crore in Q1 FY12 as against a loss of Rs 1.88 crore for Q1 FY11. Its EV/EBITDA stands at 7.60x. More importantly, the company’s debt-to-equity ratio stood at 2.27x, which cannot be viewed as an encouraging sign in a high interest rate regime. The financials of the company are not looking attractive enough to lure investors in spite of its low price, neither does it show any good reasons as to why an investor should stick to it. Therefore, we suggest that you exit the stock even if you have to book losses.

 

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