Your Stock Queries

LAKSHMI MACHINE WORKS

I am holding 150 shares of Lakshmi Machine Works purchased at Rs 1600 per share. Should I hold these or book profits?
Anand Meshram, Via Email

BPP

It is always a good idea to buy a stock when it is at its low and sell it when it is at its peak. This is no rocket science, but a general investing principle. Almost all investors try to stick to it in a bid to create wealth, but only a few succeed. Why are we bringing up this gyan instead of answering your query? Well, you have bought a stock at a price which is very close to its 52-week low. This essentially fulfills the first part of the criteria stated above. Now, will you be able to fulfill the second part as well? Here is the answer.

The company you have invested in, Lakshmi Machine Works, is a textile machines manufacturer. It is among the three companies globally to offer an entire range of machinery to textile manufacturers. Apart from textile machinery, it also has a foundry division that provides ductile iron and grey iron castings primarily for wind mills. The company’s advanced technology center division provides aerospace components, including engine parts, landing gear and structural parts. This lends the company a flavor of being a diversified engineering conglomerate.

Its financial results for the recently concluded December quarter of 2012 have not been very encouraging. The company’s topline witnessed a decline of 27.52 per cent on a YoY basis to stand at Rs 376.81 crore as against Rs 519.90 crore and its bottomline declined by a huge 48.65 per cent to Rs 20.36 crore against Rs 39.65 crore for Q3FY12. On the valuations front, the stock discounts its trailing 12-month earnings by 26.91x. The bottomline has been declining consistently for the last three quarters. A bad set of Q3FY13 results has seen the stock getting hammered ever since the numbers came out.

With regard to your investment, there is a good margin of safety between the current price and the price at which you had entered the counter. You could well book partial profits in the counter and sit safe to see if the company bounces back over the next quarter.
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BAJAJ HINDUSTHAN

I am having 500 shares of Bajaj Hindusthan purchased at an average price of Rs 32 per share. Should I continue to hold these?
Rishi Ranka, Via Email

EXIT

Your choice of Bajaj Hindusthan is a rather curious one. Was it a contrarian bet that you took by any chance, or is it that you are stuck in the counter after having brought into it when the sector was in demand? Our question to you comes out of the simple reasoning that the stocks of sugar companies haven’t really moved in any meaningful direction over the past couple of years. In fact, most of them have underperformed the broader indices. Before we answer your question, here is a brief overview of what the company does.

Bajaj Hindusthan (BHL) is India's number one sugar and ethanol manufacturing company. It has 14 sugar plants, all located in the state of Uttar Pradesh. These plants have an aggregate sugarcane crushing capacity of 136000 tcd (tonnes crushed per day) and a distilling capacity that can produce 800000 litres of alcohol per day. The company has pioneered India’s fuel ethanol programme, and currently produces 38 million litres of ethanol in a year.

BHL is also engaged in the generation of around 430 MW of power from the bagasse produced in its sugar mills, and supplies a significant part of the surplus power (around 100 MW) to the UP state grid. It has recently embarked upon an expansion drive, wherein it is looking to add 450 MW of power generation capacity by setting up new coal-based power plants of 90 MW each in the vicinity of five of its existing sugar units. These new projects would entail an aggregate cost of around Rs 23 billion.

On the financial front though, the company’s performance for Q2FY13 has been somewhat disappointing. The topline remained flat and came in at Rs 1123.58 crore, witnessing a growth of just around 0.14 per cent on a YoY basis as against Rs 1122 crore reported during Q2FY12. It has continued to report losses, which came in at Rs 122.4 crore as against Rs 119.83 crore in Q2FY12. The company did manage to report profits in Q4FY12, but this again slipped into the red thereafter. It has a substantial debt of Rs 9685 crore on its balance sheet, which translates into a debt-to-equity ratio of 2.43x. There is no clear cut direction on the minimum support price of sugarcane, and if this is increased, it will play further spoilsport for the company.

There is nothing sweet about the stock right now, and you are already sitting on a sizeable amount of loss from your investment. We suggest you get out of the counter and invest the proceeds into some other sector which can yield better returns.
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MAX INDIA

I am holding 520 shares of Max India purchased at Rs 260 per share. Is this the right time to invest more and average out? Please advise me as to what my next step should be.
Rehan Salamat, Via Email

EXIT

An investment in a diversified company always pays off well. If a particular segment in which the company is present is not doing well, some other segment is usually able to compensate for it. In this way, the overall performance remains more or less balanced. Your choice of Max India as an investment seems to be more or less on the same lines.

Max India engages in the life and health insurance, clinical research, healthcare and senior living businesses in India and internationally. It provides individual and group life insurance products, including life insurance, pension and health benefits, as well as health insurance products. The company also offers healthcare services in approximately 30 medical disciplines through super and multi-specialty hospitals in Delhi and the National Capital Region. In addition, it operates a network of healthcare facilities comprising primary and tertiary healthcare delivery centres, and leases medical and other equipment. As of March 31, 2012, the company had 500 offices across 400 locations in the country and people strength of around 57000.

For Q2FY13, it disappointed with a growth of a mere 1.36 per cent on a YoY basis in its topline, which stood at Rs 177.14 crore as against Rs 174.75 crore during the same period last year. It reported a loss of Rs 17.43 crore in the September quarter of 2012 as against a loss of Rs 10.37 crore during the same period last year. On the valuations front, the scrip is trading at a PE of 12.82x thanks to the profit of Rs 536 crore that it earned in Q1FY13. Other than that, the company has remained in the red in all four quarters before.

Though the company has a diversified business, a bulk of it is in the insurance domain, which is a long gestation business in nature. Will be able to come back into profits in the near future? This is a debatable question. At this juncture, the losses from the investment are relatively low. Hence, it would be a better idea to exit this counter and look for other attractive avenues in which to park your funds.
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SJVN

I have been allotted shares of SJVN at Rs 26 per share and have been holding these. What should my next move be with regard to the shares?
Maulik Shastri, Via Email

EXIT

The power sector has been the biggest paradox of the Indian economy. Despite having the potential to be a blockbuster, it has been suffering for quite some time now. The government too hasn’t been able to do much for it. This stands true more in the case of coal-based power generating companies. Does that mean those using other means of power generation are faring any better? Well, it surely does not seem so, and that is where our judgement on the stock that you are holding would come from.

SJVN engages in the generation and sale of hydroelectric power in India. The company primarily holds the Nathpa Jhakri Hydro Power Station with a capacity of 1500 MW located in the state of Himachal Pradesh. It is also involved in the provision of consultancy services in the field of hydropower and road/railway tunnels, from conceptualising to commissioning of hydroelectric (HE) projects.

SJVN is currently constructing the 412 MW Rampur HE project in the state of Himachal Pradesh. It is also implementing three other hydro projects (252 MW Devsari, 60 MW Naitwar Mori and 51 MW Jakhol Sankri) in Uttarakhand. Further, it has been allocated the Luhri HE project (775 MW) and Dhaulasidh HE project (66 MW) in Himachal Pradesh. In fact, its reach has extended beyond the Indian borders, and it has bagged a 900 MW Arun III HE project in Nepal through competitive bidding. In addition to this, the company has also been assigned the task of updating/preparing Detailed Project Reports (DPRs) of the 600 MW Wangchu HE project and the 650 MW Kholongchu HE project in Bhutan by the Government of India.

On the financial front, its performance has been quite muted. For Q2FY13, its topline witnessed a decline of 2.71 per cent on a YoY basis, and stood at Rs 605.15 crore as against Rs 622.02 crore for Q2FY12. The bottomline declined by 5.86 per cent on a YoY basis to Rs 387.03 crore as against Rs 411.10 crore for Q2FY12. On the valuations front, the stock discounts its trailing 12-month earnings by 8.87x and the EV/EBITDA by 5.24x.

The scrip has remained an underperformer since its listing. We appreciate the patience that you have shown, but at this point in time, we suggest that you exit the counter and invest in some other stock. You can come back to it again once the projects move in the direction of completion and start reflecting on the growth of the company.