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Greaves Cotton

I want to invest in this company at the current levels. Is it worth buying at this price?
- Sunil Jha, Via Email

AVOID

BSE/NSE Code 501455/GREAVESCOT
Face Value Rs.2.00
CMP Rs.75.00
52–Week High Rs. 95/ Low Rs. 60

From the looks of it, you seem to have already made up your mind of buying into this stock.

Question is, whether you should do it at the current price or wait a while. Almost all literature on stock investing will, by default, ask you to look at the condition of the sector that the company operates in is. Greaves Cotton, together with its subsidiaries, manufactures and sells single-cylinder and twin-cylinder diesel and gasoline engines for three- wheeled and small four-wheeled commercial vehicles.

The company also manufactures lightweight petrol, diesel/kerosene engines for agricultural applications, as also construction equipment. It exports its products principally to the Middle East, Africa, and South East Asian regions. Now, if the company is servicing a sector which in itself is not doing well, how can you expect it to do well?

GC’s financial performance substantiates our view. For the first half of FY13, its top-line witnessed a growth of only 2.41 per cent on a YoY basis and stood Rs. 861.71 crore. The net profit declined by 11.52 per cent to Rs. 65.11 crore as against Rs. 73.59 crore during the same period last year.

Looking at this, one would probably not think of investing in this company. But the company intends spending Rs. 150 crore for expansion, and it also has plans for the introduction of new products with better technology and higher margins. This is what may yield some good results going forward, and hence, we would recommend that you wait for another quarter before you enter this stock. At present, the stock discounts its twelve-month earnings by 10.37 times.
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Britannia Industries

I am holding 150 shares of Britannia Industries at Rs. 500 per share. What should be my next step?
- Ajay Thakkar, Via Email

HOLD

BSE/NSE Code 500825/BRITANNIA
Face Value Rs.2.00
CMP Rs.470.75
52–Week High Rs. 600/ Low Rs. 380
Your Current Profit/(Loss) 5.85%
Generations have grown up consuming products of this FMCG giant. In fact, there would hardly be any category in bakery and dairy products that this company is not present in. So high is the brand recall enjoyed by it that no matter how strong the competition, it has managed to stave it off and keep its position intact in the industry.

Britannia is the largest FMCG company in India with a good amount of exports too. Its strong product portfolio consisting of brands like Tiger, Good Day, 50-50, Marie Gold, Treat, Milk Bikis, NutriChoice, to name a few, is very well entrenched in the market, giving it that extra edge over its peers.

All this is reflecting well in its financial performance too. While its long-term performance has been pretty decent, its more recent performance would throw light on what we intend telling you. Its topline for the first half of the current fiscal went up by 10.08 per cent on a YoY basis to Rs. 2645.49 crore as against Rs. 2403.23 crore last year. The net profit was up 11.80 per cent, standing at Rs. 89.05 crore as against Rs. 79.65 crore during the same period last year.

On the valuations front, the stock discounts its trailing twelve-month earnings by 28.68 times and the EV/EBITDA stands at 17.35 times. Another notable point about this stock is its dividend yield, which stands at 1.77 per cent. At this juncture, we suggest that you to remain invested in it to garner better returns going forward. 
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Tata Chemicals 

What according to you should one do with this stock at the  current levels? 
- Dr Mallikarjun VT, Via Email
 

AVOID

BSE/NSE Code 500770/TATACHEM
Face Value Rs.10.00
CMP Rs.318.95
52–Week High Rs. 375/ Low Rs. 298
Before we answer your question, it would be good to actually put forth a few questions to you.

Do you hold this stock and are looking at selling it? Or do you intend buying it at its current level? If we ask you to hold it, do you have the leverage of time and money on your side to do so?

The best of portfolio managers would find themselves in a very peculiar situation if they do not have basic information and investors’characteristics in front of them.

A stock may be a good ‘buy’ for a particular investor with specific characteristics and set of objectives, while it could be a ‘sell’ for another with a different set of characteristics and set of objectives. Coming to Tata Chemicals, about which you want to know, it engages in the manufacture and sale of inorganic chemicals, fertilisers and agriinputs. It sells salt under the Tata Salt, i-Shakti and Tata Salt Lite brands and calcium chloride under the Aquex brand. Additionally, it provides Tata Swach water purifiers and pulses under the i-Shakti brand, as well as bio-fuels.

The company is the second largest producer of soda ash in the world. Its very recent financial performance has not been very great. For the June quarter of 2012, its topline went up by a very marginal 3.80 per cent on a YoY basis to Rs. 3066.14 crore as against Rs. 2953.95 crore during the same period last year. The bottomline declined by a whopping 46.17 per cent on a YoY basis to Rs. 107.59 crore as against Rs. 199.87 crore for Q1FY12. Rising interest costs (up 32.95 per cent) and higher employee costs (up 20.84 per cent) have put pressure on its profitability.

A very serious predicament of companies has been a huge debt on the company's balance sheets. Tata Chemicals too carries Rs. 8913 crore of debt in its books, which pegs its debt-to-equity ratio at 1.39 times. On the valuations front, though the stock trades at a PE of 10.90 times and the EV/EBITDA stands at 6.43 times, which may not look that expensive, on the fundamental front, things have not looked very bright for this company. Its bottomline has been sinking, having consistently declined over the past four quarters. Considering all this, we suggest that you stay away from the counter, at least for the time being.

If you already hold shares, you could look at liquidating from this counter and putting your money somewhere else for some meaningful value accretion.
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Acropetal Technologies

I am holding 1500 shares of Acropetal Technologies at Rs. 16 per share. Can I continue to hold them from a longer term perspective? Please advise. 
- J C Reddy, Hyderabad

AVOID

BSE/NSE Code 533330/ACROPETAL
Face Value Rs.10.00
CMP Rs.13.10
52–Week High Rs. 20/ Low Rs. 11
Your Current Profit/(Loss) 18.00%
Where many readers write to us seeking advice on the immediate action they should be taking on their investments, it is very good that you prefer having a long-term perspective. One basic tenet of equity investing is that they yield good and rational returns over a longer period of time.

Now, coming to your choice of Acropetal Technologies, one look at the valuations could probably make you believe that you should hold on to the stock, as there seems to be a lot of scope for it to go up. The stock trades at a very low PE multiple of 1.41 times and its EV/EBITDA stands at 1.80 times. But valuations are not the only criteria that one looks at, and considering some other factors, we suggest that you should do away with this stock and get into some other counter with the money you get by selling your present holdings.

Why do we feel so?

Well, for starters, the company is into a niche technological business, wherein it provides integrated enterprise solutions primarily for engineering design services, information technology (IT) infrastructure and healthcare industries worldwide. Spending on technology is very discretionary in nature and depends a lot on the business environment. The weakness in the overall business environment is amply reflecting on this company’s fundamentals. The June quarter of 2012 has not been very great. Its topline for this quarter declined by 30.67 per cent on a YoY basis to Rs. 64.15 crore as against Rs. 92.53 crore during the same period last year.

Its net profit too declined by 22.96 per cent to Rs. 11.72 crore as against Rs. 13.12 crore for the June quarter of 2011. As of FY12, the company has a debt of Rs. 162 crore on its books, which is not often seen in companies in the IT sector. The debt-to-equity ratio stands at 0.47 times. All this suggests that you could certainly get a better opportunity to enter this stock some time later rather than nurse your wounds of having lost money by blocking it out here.

Better late than never.

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