Losers 2011 - Avoid for 2012

India's largest microfinance company, a leading private sector power producer and the world's leading exporter of cut roses share a common trait. These were some of the companies that saw their stock prices pummelled by 80-85 per cent in 2011.

The top losers of 2011 show that it wasn't sector or market cap preferences that swayed stocks. Instead, instances such as SKS Microfinance, Lanco Infratech and Karuturi Global showcase how unforgiving markets have been with companies with high debt, regulatory hurdles or even a whiff of ‘governance issues'. The 10 biggest losers in the CNX 500 index lost a whopping 79-92 per cent in value while the index shed 24 per cent.

De rated

A dispute within its top management and tighter regulation flagged off the de-rating of SKS Microfinance that saw its price-earnings multiple fall from 20 times to barely 7 times over a year.

A lawsuit impacting its Australian acquisition, interrupted gas supply for a project and debt worries proved to be the undoing of Lanco Infratech, now trading below its book value.

In the case of Karuturi Global, ambitious plans to diversify into Ethiopia ran into rough weather. Stocks of DB Realty and Unitech shed 70-75 per cent, as promoter group companies faced investigations related to the 2G scam.

As interest rates climbed steadily upward, companies with high debt on their books such as GTL and GTL Infra, 3i Infotech and Patel Engineering lost 75-92 per cent.

No Hope

With stock prices of these companies taking such a big tumble, should investors average their positions at these prices? They shouldn't, say market participants. In fact, they hold the view that some of the worst performers this year may have suffered a permanent de-rating.

Retail investors, feels Mr Chokkalingam, Group CIO, Centrum Wealth Management, usually do not have required courage to book losses. But he advises shifting to stocks of companies which are cash-rich, offering good dividend yields and earnings record.

Mr Rikesh Parikh, Vice-President – Equities at Motilal Oswal Securities, says that even if broader markets do recover and move to higher levels, these stocks may not get back to their highs.

Our Recommendation :

Avoid these stocks for 2012 as the out look for many of these scrips is pretty negative.  Any decent spike in these should be utilized as a shorting oppurtinity with strict Stop Loss.

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Scam Tainted Buy on Declines

Investors are flocking back to make a quick buck by hunting for bargains among stocks that were pummeled by investors in wake of the bribe-for-loans scam.

Out of the 21 companies allegedly involved in the scam, BGR Energy Systems has recouped all its losses and surged 40% to Rs 740 after touching recent lows of Rs 528. The stock is thus no more a bargain buy. BGR Energy Systems is a Chennai-based capital goods manufacturer and was among the first to deny allegations of involvement in the scam. Core Projects has also bounced back 70% to Rs 256 from recent low of Rs 155 after it denied any role in the scam.

JP Associates and Suzlon have also regained their lost value. Suzlon has surged to Rs 47 after touching a low of Rs 43. The maker of wind turbine generators has clarified that Money Matters was a financial advisor for raising loans in 2009 and the transaction was under the regulatory compliance. And JP Associates has scaled back to double digits (Rs 110) after plummeting to Rs 99.

Name	19th Nov	Recent Low	% Chg	30th Nov	A	B
BGR Energy Sys	719.20	528.20	-26.6	739.69	40.0	2.8
Unitech	67.95	46.10	-32.2	63.45	37.6	-6.6
Core Projects	276.00	150.00	-45.7	255.65	70.4	-7.4
Suzlon Energy	51.75	43.00	-16.9	47.60	10.7	-8.0
Jaiprakash Associates	120.50	99.00	-17.8	110.00	11.1	-8.7
Adani Enterprises	736.05	565.15	-23.2	667.70	18.1	-9.3
Indiabulls Real Estate	173.50	118.15	-31.9	153.65	30.0	-11.4
Jaypee Infratech	80.15	62.00	-22.6	70.35	13.5	-12.2
Central Bank	216.60	183.05	-15.5	189.35	3.4	-12.6
Orbit Corporation	98.60	57.00	-42.2	82.30	44.4	-16.5
HDIL	230.50	160.10	-30.5	189.20	18.2	-17.9
LIC Housing Fin	1294.05	901.50	-30.3	998.85	10.8	-22.8
India Infoline	107.75	72.55	-32.7	82.95	14.3	-23.016
HCC	56.45	37.55	-33.5	43.45	15.7	-23.029
D B Realty	359.60	190.60	-47.0	207.90	9.1	-42.186
Money Matters Financial	686.10	344.30	-49.8	309.90	-10.0	-54.832
A = % Chg from recent Low; B = % Chg from 19th Low; Source: BS Research Bureau

Despite the rally, the realty players remain on tenterhooks amid the uncertainties surrounding pricing concerns and future funding. Indiabulls Real Estate, HDIL and DB Realty continue to be available at 11-40% discount when compared to the pre-crisis price levels.

HCC, which was up 9% at Rs 43.45 on Tuesday; is still an attractive buy compared to pre-scam level of Rs 56. Analysts sound cautious though. "Need to wait and watch the extent of damage on the performance of the stock. Lavasa was planning to come out with an IPO which is a 100% subsidiary of HCC which would have unlocked value; additionally environment ministry has also issued a notice." Gaurang Shah, Vice President of Geojit BNP Paribas said

LIC Housing Finance, which was up 5% on November 30, is still down 23% since the bribery news. Kotak Securities on Monday raised LIC Housing Finance to "add" from "reduce," saying it believes the recent price correction factors in business moderation. Gaurang Shah said, “LIC Housing Finance is financially sound and well managed entity; it has a proven track record. Numbers in the last two quarters speaks for the company’s fundamentals. It is a very decent investment from the long term point of view."

The other names in the financial space, such as Central Bank, India Infoline and Money Matters, have still not pared their losses.

Bought to you by

Ingenious Investor

Equity Research Division

Ravina Consulting

Pattamal Plaza

3rd Cross Kamanahalli

BANGALORE 560084

For Free Stock Advise + Ideas

sowmya@ravinaconsulting.com

Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com

Follow us - www.twitter.com/smartinvestor