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Your Stock Queries

| 8/9/2012 9:00 PM Thursday

DSIJ equity research experts add value to subscriber's stock portfolio by giving unbiased advice. Ask about your portfolio problem and get your stock queries answered.

EDUCOMP SOLUTIONS

Q: I am holding 50 shares of Educomp Solutions purchased at Rs 270 per share. Should I hold the stock or exit?

- Sandeep Kumar, Kochi

Educomp Solutions, BSE/NSE Code 532696/EDUCOMP, with a face value of Rs 2, is currently trading at Rs 157. Its 52-week high/low stand at Rs 320 and Rs 128 respectively. The stock is currently trading at a 42 per cent discount to your acquisition cost.

Educomp, an educational service and support provider, has been one of the most beaten down stocks over the past one year. The scrip has fallen by almost 70 per cent to Rs 136 over the last 12 months. We, at DSIJ, in our issue dated February 26, 2012, had asked investors to avoid the scrip when it was trading at a price of Rs 236. The major reasons for our ‘avoid’ rating included the company’s weak performance during the September and December quarters of 2011, increasing competition that impacted the pricing of Smart Class revenues and led to lower margins, lower incremental growth opportunity due to a high base, burgeoning debts and a swollen balance-sheet. We also took into account the FCCB redemption obligation that was supposed to materialise by July 2012 at a premium to the principal value and the depreciating rupee value that has led to huge forex losses, impacting the bottomline of the company.

On the financial front, the company ended FY12 on a soft note. The topline grew at 10 per cent on a YoY basis, and stood at Rs 1491 crore as against Rs 1350 crore for FY11. The bottomline, however, witnessed de-growth of 59 per cent on a YoY basis for FY12, standing at Rs 135 crore as against Rs 336 crore for FY11. The scrip discounts its trailing 12-month earnings by 13.87x.

We are still of the opinion that the balance is more tilted towards risk rather than reward. Hence, we advise you to exit the stock even if you have to book losses.

LANCO INFRATECH

Q: I am holding 1200 shares of Lanco Infratech purchased at Rs 15.80 per share. What should my future strategy be?

- Sandesh Dhuri, Via Email

Lanco Infratech, BSE/NSE Code 532778/LITL, with a face value of Re 1, is currently trading at Rs 13 per share, which is at a 17 per cent discount to your acquisition cost. Its 52-week high/low stand at Rs 25 and Rs 8 respectively.

Lanco Infratech engages in engineering, procurement and construction (EPC) projects, as well as in the power, solar energy, natural resources, infrastructure and property development businesses, primarily in India. It provides EPC services for thermal and hydro power projects, transmission and distribution projects, as well as for roads, highways and bridges, metros and railways, buildings, airports and sea ports including marine structures and pipelines. The company also generates and trades in thermal, hydro, wind and solar power.

On the financial front, its performance for FY12 has not been good. The topline witnessed a growth of 33 per cent on a YoY basis, and stood at Rs 10243 crore as against Rs 7704 crore for FY11. It reported a loss of Rs 112 crore as against a profit of Rs 446 crore during FY11. The interest outgo has witnessed a jump of 40 per cent YoY, and stands at Rs 1053 crore for FY12 as against Rs 757 crore for FY11. The EV/EBITDA stands at 8.64x and the debt-to-equity ratio is as high as 3.78x.

We suggest that you exit the counter even if you have to book losses.

 

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