Your Stock Queries

CESC

I am holding 95 shares of CESC purchased at Rs 275 per share. Should I hold or exit?
- Mohan Desai, Via Email

CESC is the flagship company of the RP-Sanjiv Goenka Group and is engaged in the sectors of power, retail, property and process outsourcing businesses in India, the United Kingdom, the United States, Canada, etc. The company generates, transmits and distributes electricity to approximately 2.7 million domestic, industrial and commercial users in West Bengal. It owns and operates four thermal power plants that generate approximately 1225 megawatts of power. It is also operates 132 retail stores under the Spencer’s label in India.

CESC has reported only one per cent rise on a YoY basis in the revenues to Rs 1419 crore for Q1FY14. The net profit of the company rose by just 5 per cent to Rs 131 crore on a YoY basis. The poor power demand in the region has impacted its results negatively. During the quarter, the company has reported rise in its EBITDA margins which stood at 22.35 per cent for Q1FY14 as against 20.42 per cent in the corresponding quarter last fiscal. The rise in the EBITDA margins is mainly due softness in material and fuel cost which have declined by nine per cent and nine per cent respectively on a YoY basis. Both of these costs collectively form 55 per cent of its total costs and hence there has been a positive impact on the margins. The finance cost has increased by 15 per cent to Rs 90 crore. The interest cover ratio however remains healthy at 2.9x. The tax rate for the quarter has remained at 21 per cent. On the valuation front the stock trades at a PE of 5.85x. Looking at the current market scenario we suggest you to book profit in the counter and sit on cash at this point of time.

Dr. Reddy’s Laboratories

I want to invest in the pharmaceutical sector. Is this the right scrip to start with?
- Sushil Bhaiya, Via Email

Dr. Reddy’s Laboratories (DRL) operates as an integrated pharmaceutical company. It is engaged in three segments viz. pharmaceutical services and active ingredients (PSAI), global generics and proprietary products. The company offers its products and services primarily in the areas of gastrointestinal, cardiovascular, pain management and oncology therapies. It has a base in India, the United States, Russia and other countries of the former Soviet Union, Europe and others.

The Q1FY14 for DRL reported lower than expected numbers. Its topline posted a growth of 11.9 per cent to stand at Rs 2845 crore for Q1FY14. The topline growth was primarily driven by global generics, which grew by 15 per cent on a YoY basis, driven by the US, which rose by 37 per cent during the same period. On the other hand, the PSAI segment registered a growth of 6 per cent on a YoY basis. Other key markets, as for example Europe, have dipped by 28 per cent, mainly led by Germany which posted a dip of 26 per cent on a yearly basis. However, the key markets which impacted the sales and profitability have been Russia and India. While Russia posted a growth of 4 per cent, the Indian markets remained flat during the period. The OPM came in at 19.2 per cent, witnessing a dip of 280 bps on a YoY basis. The main reason for the dip has been the R&D expenses, which increased by 55 per cent over last year to end the period at 8.5 per cent of the sales as against 6.2 per cent of sales in Q1FY13. The adjusted net profit came in at Rs 360 crore, reflecting growth of 7.43 per cent. On the valuation front the stock trades at a PE of 21x. You can start accumulating the stock in a staggered manner.
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Vardhman Textiles

I am holding 100 shares of Vardhman Textiles purchased at Rs 254 per share. What should be my next step?
- B D Sil, Via Email

Vardhman Group is a leading textile conglomerate in India. Spanning over 24 manufacturing facilities in five states across India, the group’s business portfolio includes yarn, greige and processed fabric, sewing thread, acrylic fibre and alloy steel. Its manufacturing facilities include over 927430 spindles; 55.5 tonnes per day of yarn and fiber dyeing; 900 shuttleless looms; 90 million meters per annum processed fabric; 33 tonnes per day of sewing thread; 20000 metric tonnes per annum acrylic fiber and 100000 tonnes per annum of special and alloy steel.

Before going into the financial details one fact that needs to be highlighted here is that the company has been able to display consistent rise in its bottomline for the last five consecutive quarters. On the financial front, the company has posted better results for the recently concluded Q1FY14. The topline witnessed growth of 27.04 per cent on a YoY basis to stand at Rs 1193.61 crore for Q1FY14. The company has posted strong bottomline of Rs 144.5 crore for Q1FY14 as against Rs 54.89 crore for Q1FY13. Its EBITDA has witnessed a significant jump of 62 per cent on a YoY basis to stand at Rs 288.6 crore and the EBITDA margins stood at 24 per cent which grew by 496 basis points on a yearly basis. On the valuation front, the stock trades at a PE of 4.75x. At present we suggest that you book partial profit of at least 50 per cent of your holding and keep the rest for a longer term perspective.

Shipping Corporation of India

I am holding 75 shares of Shipping Corporation of India purchased at Rs 40 per share. Please advise on whether to hold or exit.
- Prakash Agrawal, Via Email

Shipping Corporation of India (SCI) was established on October 2, 1961 by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation. SCI owns and operates around one-third of the Indian tonnage, and has operating interests in practically all areas of the shipping business; servicing both national and international trades. Starting out as a marginal liner shipping company with just 19 vessels, the SCI today has evolved into the largest Indian shipping company. The company’s current fleet strength is of 77 vessels.

The financial performance of the company has been on the muted side for the first quarter of FY14. Its topline witnessed a decline of 19.07 per cent on a YoY basis to stand at Rs 934.74 crore for Q1FY14. The bottomline too nose-dived and stood at a loss of Rs 98.7 crore for Q1FY14 as against a loss of Rs 54.87 crore witnessed during the same quarter last year. The company’s employee cost and depreciation has seen an upward movement of 5.74 per cent and 21.65 per cent respectively, which played spoilsport on the operating front. SCI has remained in red at the operating levels too. At present we believe that exiting the counter will be a better option for you.