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AGRO TECH FOODS

I am holding 100 shares of Agro Tech Foods purchased at Rs 425 per share. What should I do next?
Arvind Sahastrabuddhe, Via Email

BSE/NSE Code 500215/ATFL
Face Value Rs 10
CMP Rs 517
52-Week high/low Rs 536/Rs 399
Current Profit/(Loss) 21.65 per cent

Booking losses and looking at alternatives is one of the most important traits of a good investor. While this is important, even more critical is to take money off the table at profitable times.

You are currently sitting on a neat profit of 21.65 per cent from where you had invested in the counter. That should be reason enough for you to take some profits home. But here are some more reasons why we feel you should be selling only a part of your holdings and cling on to the remaining which are likely to fetch you good profits going forward.

Agro Tech Foods (erstwhile ITC Agro Tech) mainly engages in the production, marketing, and sale of food and food ingredients to consumers and institutional customers primarily in India. It offers refined oil under the brand ‘Sundrop’. Its product portfolio comprises of instant popcorn, under the ACT II brand and puddings under the Sundrop Snack Break brand. It also has Sundrop Peanut Butterrefined sunflower oil under the Crystal and ready to cook products under the Sundrop 10-minute Yummeals brand names. Agro Tech Foods is a subsidiary of CAG – Tech (Mauritius).Till the time of going to press, its Q4FY13 results were not declared but looking at Q3FY13, the company has performed well on the financial front. The topline of the company has witnessed a growth of 21.60 per cent on a YoY basis for Q3FY13 as against Rs 180.84 crore for Q3FY12. On the bottomline, it has witnessed a growth 16.30 per cent on a YoY basis for Q3FY13 to stand at Rs 13.06 crore as against Rs 11.23 crore as of Q3FY12. On the valuation front, the stock discounts its trailing 12-month earnings by 32.19x and the EV/EBITDA stands at 21.69x. Though the valuation looks steep when compared to other listed peers like Ruchi Soya and KS Oils, the part that needs to be highlighted is that the company is virtually debt free. As of FY12, its debt on the books stands at a mere Rs 9.43 crore.

Looking at the profit that you are sitting on, it is advisable that you book partial profits of atleast 25 per cent of your portfolio and take the final call once the FY13 results are declared.
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KESORAM INDUSTRIES

I have 200 shares of Kesoram Industries, bought at Rs 155 per share. Shall I exit or hold the counter as it has reached a 52-week high?
Nachiket Saraf, Via Email

BSE/NSE Code 502937/KESORAMIND
Face Value Rs 10
CMP Rs 115.10
52-Week high/low Rs 170/Rs 75
Current Profit/(Loss) 25.74 per cent

It is indeed a sad thing on your part to seek advice at this stage. Simple arithmetic says almost a quarter of your investment in this counter has been shaved off. Your query is a classic example of the follies that result in wealth erosion. Investors buy in greed, sell in panic, and hold in expectation. All three result in nothing but wealth destruction.

The point at which you are seeking advice reflects the above. You seem to be expecting an answer which will direct you to cling on to this counter until it comes back to your purchase price and further go up to fetch you profits. But good financial advice always is ruthless.

We, at DSIJ, have always been proponents of a very practical wealth creation philosophy and keeping with this tradition we would recommend that you exit the counter and look out for better options elsewhere. Here are the factors that substantiate our stand in your case.

Kesoram Industries belongs to the B K Birla group. It has a presence across many segments like Cement, Tyres, Rayon, Spun Pipes and Chemicals. The tyre facility based in Orissa and Uttarakhand has a capacity of 1.21 crore tyres per annum. The cement facilities in the state of Karnataka and Andhra Pradesh have capacities of 57.50 lakh metric tonnes and 15 lakh metric tonnes of cements respectively. The rayon business has a 55887 metric tonnes of cumulative capacity in its plant based in West Bengal. The spun pipes business which also has its unit in West Bengal has a capacity of 45000 metric tonnes and it is present in heavy chemicals through its plant in West Bengal.

The financial numbers for the company have been disappointing with regard to the December FY13 quarter. Its topline witnessed a decline of 16.40 per cent as of Q3FY13 on a YoY basis to stand at Rs 1298.31 crore as against Rs 1552.98 crore for Q3FY12. On the bottomline, it reported a loss of Rs 117.21 crore for Q3FY13 as against a loss of Rs 266.42 crore as of Q3FY12. Apart from posting profits in the last quarter of FY12, the company has consistently remained in losses for the last six quarters. The main dampener for the company is that it is sitting on a humungous debt of Rs 4754 crore as of FY12. In fact, on a YoY basis, the interest cost for Q3FY13 has moved up by 35.31 per cent to stand at Rs 137.35 crore.

This performance should tell you why we want you to exit the counter and invest in something that can really yield growth.
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BOMBAY DYEING & MANUFACTURING COMPANY

I am holding 200 shares of Bombay Dyeing & Manufacturing Company purchased at an average price of Rs 110 per share. What should be my next course of action?
Kanika Sivramkrishnan, Via Email

BSE/NSE Code 500020/BOMDYEING
Face Value Rs 2
CMP Rs 86.15
52-Week high/low Rs 140/Rs 77
Current Profit/(Loss) 21.68 per cent

This stock was once a darling of the markets. In fact, the entire business empire of the Wadias rested on the success of this company. You may probably miss the point that the Wadias own one of India’s best-known airlines (GoAir) but the moment one says Bombay Dyeing, it automatically trains your brain towards the Wadias.

Sadly enough, this group has not done well on the value creation metrics. Just look at your own case; you are already down 22 per cent from what you had invested. Will the stock come back to your levels? Will it yield profits? Your position is very similar to that of Mr Saraf (in the adjoining query), who too is invested in a textile stock. You surely would have invested in this counter during that time when the textile sector was surrounded by a euphoria which probably came from expectations that India was fast becoming the textile hub of the world. What next? Well, the only practical course for you would be to get out of the counter, take whatever money is left out of your investment in this and go put it somewhere else. Why? Here it is.

Bombay Dyeing & Manufacturing Company has a history of more than a century. Through its subsidiaries, it is engaged in the manufacturing of linens, towels, home furnishings, leisure clothing, and kids wear. The company sells its products through approximately 350 Bombay Dyeing stores and approximately 2000 multi-brand stores. It also offers polyester staple fibre that is used as a substitute for cotton to manufacture yarn, and engages in the real estate development activities. The company also exports its products.

Looking at the financials of the company, the numbers for Q3FY13 were not too encouraging. The topline witnessed growth of a mere 9.50 per cent for Q3FY13 and stood at Rs 471.07 crore as against Rs 430.19 crore for Q3FY12. The bottomline continued to remain in red and posted a loss of Rs 26.86 crore for Q3FY13 as against a loss of Rs 52.11 crore for Q3FY12. In the last six quarters, barring the March 2012 quarter, the company has posted losses. It has a debt burden of Rs 1304 crore on its books as of FY12, taking its debt to equity ratio to 0.73x. The interest outgo has seen an upswing of 31.94 per cent on a YoY basis for Q3FY13 to stand at Rs 42.26 crore. This can be considered as one of the reasons for the company moving into red.

At the current juncture, you are sitting on a considerable loss of 22 per cent. We would thus suggest that you exit the stock despite having to book losses.
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GREAVES COTTON

I wish to invest in this company at the current levels. Is it worth buying at this price?
Pradeep Butala, Via Email

BSE/NSE Code 501455/GREAVESCOT
Face Value Rs 2
CMP Rs 75.60
52-Week high/low Rs 89/Rs 60
Current Profit/Loss NA

India has been an agrarian economy right from the beginning. Anything agrarian and rural is bound to do well as they say, ‘India lives in its villages’.

Greaves Cotton is a company which is primarily servicing agriculture in India and hence you have raised this question at a safe point of time, from where it is comfortable to analyse the company and take a decision on investing in it. The following data will help you in taking a call.

Greaves Cotton, together with its subsidiaries, offers various single-cylinder and twin-cylinder diesel and gasoline engines for three-wheeled and small four-wheeled commercial vehicles. In addition, the company manufactures lightweight petrol, diesel/kerosene engines for agriculture applications. Additionally, the company manufactures construction equipment and also exports its products principally to the Middle East, Africa, and South East Asia region.

The performance of the company in financial terms has not been encouraging for Q3FY13. The topline witnessed a growth of 11.08 per cent on a YoY basis for Q3FY13 and stands at Rs 515.78 crore as against Rs 464.35 crore for Q3FY12. The bottomline remained flat to post growth of a mere 0.59 per cent on a YoY basis for Q3FY13 and stands at Rs 34.36 crore as against Rs 34.16 crore for Q3FY12. The company has a capex plan of Rs 150 crore for expansion and it also has plans to introduce new products with better technology and higher margins. The good part about the company is that it is debt free. In the automotive segment, it is focusing on expanding into higher capacity engines, while it is planning to develop new applications in the industrial segment. In the construction equipment segment, it is planning to launch new products.

At present, the company discounts its 12-month earnings by 10.45x. We suggest that you wait for one more quarter before you make an entry in the stock.

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