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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Sector Review - Realty 2010

Vidya Bala

BL Research Bureau

The stalled township project of Lavasa Corporation over alleged flouting of green laws and the resultant delay in the company's IPO is just one among the many snags that real estate players in the country struggle to cope with.

The real estate sector may have braved the crisis of 2008 and 2009 and managed to reduce borrowings and renew construction activity in 2010; but not too many factors are in its favour to aid a bounce back to the heydays of 2007.

That the earnings of companies in the listed realty space in the first half of FY-11 were still a good 67 per cent below earnings in the April–September half year of 2007, suggest that the climb back is quite a while away.

What 2011 holds

2011 could see the sector earnestly build on volumes, with residential sales remaining healthy and commercial space absorbed picking up. Even so, modest profit margins compared with earlier years and rising interest costs could continue to act as a drag on the sector's prospects.

If the recent trend is anything to go by, it is the mid-sized players that are likely to shake off the slowdown faster than their larger peers.

Residential demand

Residential demand can be expected to be the key revenue driver for developers, thanks to supply not keeping pace with demand as a result of slowdown in execution in 2008 and 2009.

According to a Cushman & Wakefield report, cumulative residential demand could be well over four million units by 2011. About 1.7 million units may be met in 2011, says the report, with the mid-sized housing segment seeing the maximum deficit (around three times).

Players in the listed space such as Sobha Developers, Peninsula Land, Puravankara Projects, who are focussed on the residential space, capitalised on this deficit by coming up with timely launches at a time when interest rates were slashed.

While the commercial space pick-up towards the end of 2010 has been encouraging, estimates suggest that only two-third of the 55 million sq. ft of supply coming in 2011 may be absorbed.

Inability to hike capital values and rentals at a desired pace, even as vacant office spaces are occupied are likely to keep margins depressed.

Modest profit margins

In all, operating profit margins of developers may only continue at more sustainable levels of 20-25 per cent (as against 30-45 per cent in 2007-08) for most mid-sized players for two reasons. One, most of them have altered their strategy from selling high-end homes and instead shifted focus to mid-sized housing, which offers lower margins, albeit with potential for high volumes.

Two, even as capital values of residential properties have risen, the inability to hike prices steeply in the middle-income segment in the face of higher input costs and interest costs could also mean settling for lower returns on projects.

Interest costs, in particular, may see some uptick this year. While most listed realty players have deleveraged their balance sheets, net credit by banks to the realty sector as a whole has risen five-fold to Rs 9,604 crore for the half year ending September 2010 compared with a year ago. Equity raising too, has slowed and may get tougher going forward.

According to data from Venture Intelligence, a research service focused on Private Equity & M&A, private equity investments in the realty sector in 2010 was $1,736 million against the high levels of $6,686 million seen in 2008.

Larger players languish

Overall, mid-sized regional players' focussed approach to select market segments may help outperform a DLF, still struggling to raise funds through divestment of non-core assets, or a Unitech embroiled in the telecom mess or an HDIL which deals with price-sensitive transferable development rights (TDR) market in Mumbai.

Traversing the coming year without being caught on the wrong foot on corporate governance issues also remains a big challenge for most players in this space.

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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.

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Technicals - Icici, Punj Lloyd, Suzlon, Unitech & LIC Housing

ICICI Bank
Current price: Rs 398
Target price: Rs 365

The stock is ripe for some profit-booking. It's hitting resistance above Rs 400. On the downside, there is support between Rs 360-Rs 370 and that is likely to be tested on intra-day basis at least. Keep a stop at Rs 405 and go short. Book profits below Rs 365. Be prepared for 10 per cent intra-day swings. 

Punj Lloyd
Current price: Rs 114
Target price: Rs 125

The stock has made what seems like a valid breakout from a base at Rs 105. It has a potential target of Rs 125. Keep a stop at Rs 110 and go long. Start booking profits above Rs 122. If the stock dips below Rs 106, the next reliable support is at Rs 97. So a short would be possible. 

Suzlon Energy
Current price: Rs 57.5
Target price: Rs 63

The stock has made a breakout past resistance at Rs 54 on a volume expansion. It has a potential target of Rs 63 and perhaps Rs 65. Keep a stop at Rs 55 and go long. There is massive resistance at Rs 67- Rs 68 so the stock is very unlikely to cross the level. 

LIC Housing
Current price: Rs 282
Target price: Rs 300

The stock has broken out past resistance at Rs 250 on high volumes. It could achieve a target of about 300. Keep a stop at Rs 276 and go long. Be prepared for major bursts of volatility in what is usually a very stable stock. Book some profits above the Rs 290-mark. 

Unitech
Current price: Rs 42
Target price: Rs 48

The stock has moved up on strong volume expansion. It has a potential upside till the Rs 48 level and if there is a burst of profit-booking, it could collapse back till the Rs 37-Rs 38 level. Keep a stop at Rs 40.5 and go long. Start booking profits above Rs 46.

Source BS 13-04-09

Realty Shares crash 16th Feb 2009

Nine realty shares fell by 0.12% to 8.62% as the interim general budget did not provide any sops to the realty sector as was expected.

External Affairs Minister Pranab Mukherjee, currently in charge of the finance ministry, presented the interim budget today, 16 February 2009.
At 13:35 IST the BSE Realty index was down 4.48% to 1,521.07. It underperformed the Sensex was was down 3.13% at 9,333.44.
Realty stocks had surged in the past few days on budget hopes. The BSE Realty index had risen 14.7% in past six sessions to 1592.36 on 13 February 2009 from 1388.52 on 5 February 2009.
Sobha Developers (down 0.12%), Parsvnath Developers (down 0.62%), Puravankara Projects (down 0.83%), Akruti City (down 1.05%), Omaxe (down 1.47%), DLF (down 4.23%), Housing Development & Infrastructure (down 5.08%), Unitech (down 5.81%), and Indiabulls Real Estate (down 8.62%), slumped.
The government was expected to announce some relief for the real estate and housing sector, which is crumbling under liquidity crisis and a slowdown in demand. But no such sops were announced.
The previous two stimulus package had left realtors unhappy. As a part fiscal stimulus, the government on 2 January 2009 had allowed the developers of integrated townships to borrow funds from overseas and also asked states to release land for low- and middle-income housing schemes.
The government had also asked the public sector banks to lower rates on home loans up to Rs 20 lakh. But realtors complained that the existing stock of unsold homes cost much more than Rs 20 lakh, so that the interest rate concession on loans up to Rs 20 lakh would not help their sale.
The demand in residential segment has declined in the last six months on account of high interest rates on housing loans and steep rise in property prices in the last 2-3 years.
The BSE Realty index had underperformed the market over the past one month till 13 February 2009, falling 10.33% as compared to the Sensex's 6.21% rise. It had also underperformed the market in the past one quarter, sliding 22.20% as compared to the Sensex's rise of 1.03%.