Investing in stocks is all about risks. More or less our recommendations in the past year have done well. Some of the stocks we identified and suggested were block-busters, and offered several exit points to profit. But many also failed miserably. The outcome forced us to analyse the stocks that did not work, despite finding way into our recommendation. We evaluated the stocks that failed from the time of our recommendation to understand the cause of failure. We set about detailing what lead to the failure of these stocks and plan to feature one stock in each of the coming issues.
In the November issue of Wealth Insight, we featured NDMC and elaborated why the stock failed to post returns. This time we are featuring Transformers & Rectifiers India Ltd (TRIL). We had recommended this stock in November 2011, when it was priced at `220. Since then, this stock has lost 38 per cent.
So what went wrong? The stock’s trailing 4-month revenue has declined quarter-on-quarter since September 2011 (up to June 2012). In the past five years, the raw material cost went up from 65 per cent of the total revenue in FY07 to 80 per cent in FY12. To further impact the stock, other manufacturing expenses have also gone up, which is eating into the profit margins.
At a time when margins are afflicting the entire industry, this stock was also exposed to diminishing margins. Falling revenue is entirely TRIL’s own doing. It has not managed to push or sustain its revenue compared to its peers. The company has strayed and we are not recommending this stock anymore. The company is staring at the long road to redemption which could last for many years, which best leaves investors to consider exiting the stock and cut their losses.
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