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“In India, companies may fall sick, but promoters rarely do!”

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Scary October 2008…Sensex Oct 1:13056….Oct 27: Down 41% to an intra-day low of 7697….Oct 31: Bounce back 27% to close at 9788 in just three trading days…..so is the worst over ?

This week began with the Sensex recording an intra-day low of 7697 on Monday and it has closed up 27% from this low  to illuminate this Diwali week by a bounce back of 2091 points

October 2008 itself has been a very scary month…The Month began on October 1,2008 with the Sensex closing at it’s highest for the month…13056…It’s been sharply downhill since then ,plunging 41% or 5359 points to a low of 7697 on October 27,2008 before closing more respectfully at 9788 on October 31,2008 

So is the Worst Over ?

Not by a Long Shot…..Action has largely been restricted to Large Cap Stocks in the Sensex and the BSE 500 with heavyweights,HDFC and RIL leading the way ,up 17.48% and 13.81% respectively

BSE Indices

Oct 31,2008

Close

Up by

% Up from previous

trading day close

Sensex

9788.06

743.55

8.22

Mid Cap

3200.02

105.54

3.41

Small Cap

3765.11

90.50

2.46

BSE 500

3570.07

219.45

6.45

Fed has cut back rate to 1%,last seen in different circumstances in 2001, and the World is moving towards a Zero Rate Quantitative Monetary Easing Policy or QMEP…even Japan,with it’s 0.5% rate is thinking of reducing it.Money Supply and not Rates will be the Control Tool. 

With Recessionary and Liquidity crunch conditions unlikely to go away soon in developed nations,their GDP Growth rates will converge to Zero %

In India,with FII OutFlows continuing to dominate proceedings,the Sensex will face a challenge trying to create it’s own independent Identity and will continue to mirror and shadow the trend in Global Indices,particularly the Dow.Over US $ 3.5 billion has been moved out by the FIIs this month alone with the year’s aggregate to date crossing US $ 11 billion. 

Also there is a perceptible Corporate Earnings Slow down and many in the Construction and Infrastructure Sector have stopped work on many Projects with Demand and Asset Prices easing considerably and increasing difficulty in Financial Closures

HCC is one such major player in this sector that has announced project stoppage.It’s share price had slipped below Rs 40 today and closed without gains at just over Rs 41…it began this week with a year low of Rs 30…It had begun the Year 2008 with the Year High of Rs 279 !

Countries have been lining up the IMF for huge Bailouts…US $ 100 billion to six countries to be decided soon,probably today

The Global Economic situation remains grim and scary…India is not decoupled to escape the consequences,nothwithstanding what our FM has been assuring us right from Sensex levels of 21000 !….The second half of FY 09 will confirm that the Earnings slow down continues in India read more

Lok Housing now faces Rs 100 crs Income Tax Liability on undisclosed Income

Lok Housing is on lower circuit at Rs 24.35 today on the BSE on news that it is facing an Income Tax Liability of Rs 100 crs on Income that was not disclosed

On July 7,2008,I had blogged on Lok Housing crashing from Rs 400 to Rs 44 inside six months querying as below

 “What’s happening ? With such a performance why has Lok Housing dropped from Rs 400 in Jan this year to Rs 44 today…is there a significant legal issue, inflated asset or liability non provision we don’t know about ?”

Yes there was and now we know what it was…Why did we not know this before? why do Shareholders and Investors have to keep on guessing what is happening in a Company !?…There are mechanisms for immediate and timely disclosures like Listing Agreements.Also Auditing and Accounting Standards and Corporate Governance have to be adhered to in the Annual Report,for disclosure of such significant and sensitive developments…Why are such Mechanisms proving inadquate ? Are they not being followed or implemented properly or do they need strengthening ?   

 

Poddar Developers Ltd…Self Development gone awry ?

Earlier called Wearology, and before that Monotona Exports,Poddar Developers has been a huge rollercoaster ride in the Movements of it’s Share Price on BSE in 2007 and 2008…In 2007 itself, from a low of Rs 23  it literally was pulled aggressively to an all time high of Rs 320 ….SEBI even issued a Show cause and cautioned the Promoters,the Poddars to cool off..it was more a let off ! 

It has fallen on Friday  to a new low of Rs 34 in 2008…Investors have lost  90% from peak

Have a look at the Trading Statistics in 2007 and in 2008 till date

PODDAR DEVELOPERS LTD

TRADING STATISTICS ON THE BSE

Year

Open

High

Low

Close

Volume

No of Trades

Turnover Rs Crs

2007

23.40

319.80

23.40

150.35

7843463

34361

100

2008

152.05

167

34.10

36

1871887

8542

19.3

The Company has an equity of Rs 5.2 crs and earned a Net of Rs 24.6 crs in FY 08 on the back of the sale of Gopi Resorts Pvt Ltd for Rs 34.55 crs…They declared a 15% dividend and also paid tax of Rs 6.5 crs on gains on sale of Gopi Resort Pvt Ltd.In the June quarter in FY 09 they have notched up Rs 49 lakhs in profits again on the back of other income…Reserves are Rs 44.1 crs showing a Book Value of near Rs  95 at March 31,2008…so P/BV looks great at below 0.4

The Board of Directros have empowered themselves to decide on Company lending or investing upto Rs 100 crs…Their Garment manufacturing Unit at Rabale has been sold for just over Rs 2.2 crs and now they only trade in garments…perormance shows that even this is a losing proposition…They have a 100% Subsidiary in the USA already for Garments Trading  and plan to launch two others,one is USA and the other in Sharjah 

Their focus on the new real estate division is what caused the Change in Company name….They have a 100% subsidiary Makara Real Estate

And sources state that the Net Profit in FY 09 will exceed that shown in FY 08 !..so P/E which already has fallen below 1 on FY 08 EPS should be even lower on a Forward basis

So all this should make Poddar Developers at Rs 34 to Rs 40 a very compelling Investment…Right ?

Problem is the Negative Vibes emanating from this Company…the lack of clear transperancy in operations and lack of adequate corporate governance creates question marks on the credibility and intentions and even  genuine business acumen of the Promoters….why did they sell off Gopi Resorts when they planned to develop the near 100 acres it owned near Mumbai ? Did they transfer it internally as it showed huge potential and promoters wished to corner all of the gains ?…a plan that may now seem to have gone awry !…. What will they do with this Cash in Hand Now ? Why did they empower the Board to invest or lend upto Rs 100 crs ?…are they planning leverage in this Flagship to be diverted then to other business ventures where Poddars hold an interest,or invest in or lend to subsidiaries? …There are just too many questions      read more

FY 2000/1 Being Repeated….Huge Erosion in Equity in 2008 till Date

Our Sensex Reached an intra-day high of 21206.77 on January 10,2008 this year,but had registered ahighest closing of 20873.33 just two days earlier on January 8,2008

To gauge the Erosion in Equity on the Bombay Stock Exchange from January 8,2008  to September 30,2008 just have a look at the Indices Table Below…Buffett just commented that USA is “Flat on the Floor” and it’s time to be Greedy..see an earlier blog today…India is not far behind !

Wealth Destroyers in 2008

January 8 to September 30

 

Indices

Sep 30

 

%  Wiped Off

 

Sensex

12860.4

-38.4

Nifty

3921.2

-37.6

BSE Mid Cap

4798.3

-52.0

BSE Small Cap

5577.5

-59.0

BSE 500

4897.6

-44.3

Sector Indices

 

 

Realty

3508.8

-74.0

Consumer Durables

2929.2

-55.4

Metal

8992.1

-54.0

Power

2260.3

-53.0

Capital  Goods

10581.1

-47.7

Banks

6478.9

-46.4

Oil & Gas

9039.3

-35.7

Auto

3675.0

-34.3

Information Tech

3095.1

-27.1

Healthcare

3672.2

-14.5

FMCG

2160.8

-13.8

 As I Blog this we are closing this week on the BSE in even more negative territory despite the Indo -US Nuclear Treaty and the US Financial Bail-out Plan having been passed on October 1,2008…yesterday BSE was closed on account of Gandhi Jayanti and Eid…The Sensex,which had closed at 13056 the day before is down over 570 points and has slid below 12500 and should close at the lowest so far in 2008 

As I have said in recent blogs…look for Vulture Opportunities

U S A…..United States of Abattoirs ! ….Strategy going forward

USA…What a slaughterhouse !…Bears & Sterns….Now Lehman,Merill Lynch,American International Group…all inside two days….with more to come !….Comical really…those who lived in Glass Houses were throwing stones at others…..Their Reports were always revising or even reversing estimates and projections and strategies advised earlier to justify every share price rise and fall !….how could you then sensibly move with them !…now you know why Warren Buffett prefers to be in Omaha……away from Wall Street! 

Till they threw their hands up this week they were all preaching Indian Equity Strategies in lengthy reports…messed up their own backyard and then moved on to mess up those around the world…sadly we let them…. succumbing to their pressures to open out our economy on a fast track for them to enter and play havoc…we were brainwashed to see the rose and not the thorns…we ignored the wilting,hoping that our markets would remain affected only to a limited extent by the US Contagion…we boasted of decoupling…and now as FIIs reverse flows of billions of dollars from our markets we in turn are wilting !  

Imagine if Freddie Mac and Fannie Mae,the USA Pillars of mortgage lending,  were allowed to collapse,instead of the Fed taking them over last week !…The 1929 Depression would have paled to what would have unleashed around the world

So what Now ?….Oh ! the Virus is deeply set in and only Disk cleansing and reformatting may salvage something…this would mean letting old Financial Powerhouses die out instead of baling them out…a sad and tough call but one which the Fed has taken now for Lehman

The reality is that the mortgage and other lending woes are yet to play out their strikes in full….any bale out…US $ 85 billion for an 80% stake was just announced by the Fed for the AIG Group…..will not create new jobs and new income and new business…will not be productively spend…it goes only to part fill the hole created by lending and investment loss…it will takes years to recoup and come back on healthy profit track…whether it is Citigroup or AIG

The business and sentiment shrinkage is visible in all developed economies…USA,UK,Germany,Japan and even China

Oil is now rapidly falling and is close to US $ 90/barrel…Inflation too is seen to be in a falling mode….and the rupee has dramatically depreciated 20% from Rs 39/US $ to Rs 47/US $ in no time read more

Achtung ! Achtung ! Akruti !

Akruti City is probably the most relatively expensive real estate company in India.

 At Current Share Price of Rs 840  and an Equity of Rs 66.70 crs (Face Value of Rs 10) the Market Capitalisation is Rs 5600 crores. At March 31, 2008 the Networth was just under Rs 800 crores and Debt was Rs 626 crores. On Sales of Rs 441 crores it earned a net of Rs 295 crs registering an EPS of Rs 44. That’ s a P/E of 19… Even in the three months at June 30, 2008 the Net is Rs 171 crs… Company also pays taxes and dividends

 So what’s the Achtung ! for ?

 The Promoters, Shahs, hold a near 90% stake and sources state that there is fresh aggressive borrowing at high  24% to 30% pa interest rates pledging 200% value of the Akruti shares and Loans have shot up to around Rs 1000 crs.

 Akruti is also the only real estate stock quoting at 100% higher share price compared to a year ago.

 It’s now also in Derivative play and with a low floating stock it will be easy to manipulate and keep the listed price of the stock artificially high….. this will give added leverage to promoters to keep pledging their shares to raise finance.Reportedly Sales are also being booked for Properties pledged for Loans  

 Any guess what the endgame could be in 6 months to 1 year when the loans come up for repayment?

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