This article first appeared in the November issue of Wealth Insight magazine that looked at the opportunities available in the markets at a time when valuation concerns were increasingly being voiced
The stock markets are poised on the cusp of uncertainty near the 16K levels. Driven by market trends, analysts jargon and global comparisons, it has led bulls to predict a stock market surge to surpass all-time highs by early 2010, but at the same time the bears, playing by the valuations book, are predicting a correction. While that has not really affected the positive FIIs’ inflows, it has created a situation where small investors are looking to book profits and thereby escape the anxiety, or looking to be pointed in one direction on the basis of a sound investing theme based on a reliable premise.
We have looked for some answers for these investors and many other who are eyeing profitable opportunities. While there is no talk of taking a stand on the best price to buy, we unveiled those stocks that are trading below their cash per share value.
We arrived at these stocks by adding up the cash and bank balance to the investments made by a particular company — we looked at the BSE 500 companies’ universe. Then this sum was divided by the company’s total equity holding. This gave us the cash per each share available in that company. Other criteria were added (explained in the table) to this filter to arrive at stocks which can provide better opportunities for investment.
We removed from the equation all the banks and financial services companies since their performance and solvency is well regulated by the Reserve Bank of India (RBI).
All of these stocks, it must be said in advance, are under pressure due to various company or sector-specific reasons:
Tata Steel has become a global steel behemoth after its acquisition of Corus. While that splashed its name on every pink paper in the world, the crash of 2008 brought immense pressure on the company forcing it to even close a few of its plants and rationalize workforce, and at the same time meet its Corus-related payment obligations. The results for September, 2009 was dissapointed compared to that of 2008, but then there was a commodity boom at that time.
Then there is the case of Hindustan Petroleum Corporation Limited (HPCL), which is an India-based integrated oil refining and marketing company. It has been struggling under the combined weight of the recent spike in oil prices and strict government regulation that set controls on retail oil price.
Telecom software products maker Subex is in a debt trap. Its foreign currency convertible bonds (FCCBs) worth $180 million (Rs 841 crore) are outstanding. These bonds can be converted into equity shares any time before March 2012 at a price of Rs 656 per share. These funds were raised in 2007 to acquire Syndesis Ltd, a telecommunications support software developer. Although the RBI has allowed it to restructure its debt, yet a lasting solution is still awaited.
Rajesh Exports is engaged in the business of gold and diamond jewelry, but the industry has been put under severe pressure by the downturn. Adding to the gloom is that gold prices are at all-time highs, which has affected demand to the tune of 60 per cent according to the company itself.
The technological solutions firm 3i Infotech is a highly leveraged company. The company issued qualified institutional placement (QIP) of 3.75 crore equity shares at a price of Rs 84.75 each to retire its debt, which led to a collection of Rs 317.8 crore. This is expected to reduce the debt-to-equity ratio to 1.4x from 2.1x earlier, but it has received a setback as its recent quarterly report has been disappointing.
Alok Industries operates in the export segment of the textile sector, supplying to clients such as Walmart Stores Inc., Nautica and Zara. Due to the global financial crisis, export-based companies took a deep hit leading them to reduce further their quality product targets even more towards the affordable variety. Reportedly, it has modified its value-premium supply ratio to 90:10 from its earlier 70:30.
Firstsource Solutions is a technology company that is in the business of providing BPO services along with transaction processing services in the verticals related to healthcare, telecom and media, banking, financial services and insurance (BSFI) and Asia Business Unit (ABU). Its margins are stressed and the company is trading at a discount.
Realtor Kolte-Patil Developers is another debt-affected company that is finding it difficult to overcome the chalenges without facing hardships — it raised a lot of debt through its subsidiary in recent times. Its margin of discount is not much, which can translate into a high risk buy, but it is available at a lower price.
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