It is among the four stocks that are probably most widely held by retail/HNI investors from the days of previous Bull Run in anticipation that they will at least come back to the price at which they have invested in them.

However, I strongly believe that given its extremely weak business model the chances of Suzlon coming back to its 2007 high of around Rs. 470 and rising around 850% is quite remote.

It is perhaps one of the most talked about stocks across all the business news channels and there exists a support and resistance theory at every Rs 5-10 level just trapping investors at every fall and compelling them to average more and more. Moreover, a lot of institutions, fund managers and analysts rate the company as one of the Gen-X stocks in the sunshine sector and thus trapping the investors even further with the glittering story.

Why Suzlon is a Fantastic Stock?

• Despite being in the SUNSHINE wind energy segment its standalone net sales has fallen from something around Rs. 7000 crs in FY08 to Rs. 3500 crs in FY10
• PAT has fallen form a level of around Rs. 1200 crs to a LOSS of around Rs. 1400 crs
• The reason for this fall in sales coupled with even more fall in profits is the faulty blades which Suzlon produces and moreover spends huge sums to repair the same.

[A very interesting Google search with the key words “Suzlon, Blade and Problems” will highlight the core problem in Suzlon’s business and reason for its continuous stream of losses and poor performance]

• Total Debt has increased from around Rs. 9000 crs in to around Rs. 13,000 crs in order to execute expense acquisitions of international subsidiaries and paying hefty goodwill
• Total Goodwill in FY10 has increased to a level of around Rs. 6100 crs from the levels of Rs. 1400 crs in FY08, in fact there has being no addition in its gross block for plant and machinery, a capital intensive company is actually not adding real capital
• For FY10 for Suzlon around 100% of its Networth is Goodwill, so its tangible Networth is actually negative
• Current Higher interest rate scenario in India would hurt the margins further and added to already existing losses
• Its corporate governance policies given even more reason for an investor to disown this stock because in the past it has announced series of rights issues, QIPs, other equity raising instruments, precisely at the times its stock price had taken a major hit because of a bad market conditions
• A negative trailing 4Q EPS of Rs. (8.15) gives the stock a meaning less P/E and hence no compassion could be made for its valuations

To summarize I would say that Suzlon is like a fancy stock in a fancy industry which is just playing with the investors and continuously eroding their wealth. It’s better to avoid such a stock since market offers far better investment opportunities at the current levels rather than buying or even continuing to hold Suzlon.

In this Fantastic Four series you already know the first two i.e. DLF and Suzlon. The other 2 members of this team of Fantastic Four will follow soon…

Happy Investing…!!!

The author of this article Rahul Sonthalia, is currently working with MPA Group and he is the Vice-President of its Portfolio Management Services Vertical. He loves writing and is a regular contributor to MoneyBol.com.

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DLF is the first of the 4 stocks in my series of India’s Fantastic Four Stocks.

Why DLF is a Fantastic Stock?

They also suffer a phenomenon called BASE EFFECT. DLF was around Rs. 1000 in January 2008 and now is at Rs 225, thus it’s a fall of around 77.5% in value. However, if I assume DLF to go back to the levels of Rs. 1000, then it has to rise by over 350% and given its fundamentals and valuations the chances of DLF rising by over 350% even in 3-4 years time frame is quite remote.

Moreover, these four stocks are most talked about 90% of analysts on all TV Channels and there exists a support and resistance theory at every Rs 20-30 just trapping investors at every fall and compelling them to average more and more.

Some of the key reasons why I believe DLF should not be held in an investment portfolio are:

• Consolidated Sales have fallen from around Rs 14,500 crores in FY08 to Rs 7500 crores in FY10

• PAT has fallen from around Rs. 7,800 crs in FY08 to Rs. 1800 crs in FY10

• Despite Rs 7500 crs of Sales and Rs 1800 crs of PAT there has being a net cash outflow of Rs. 260 crores in FY10

• Total Debt has increased from Rs. 12000 crs to Rs. 21,000 crs

• Total Share Capital has increased from around Rs. 1300 crs in FY08 to Rs. 6300 crs in FY10 despite an IPO in FY2008

• Rs. 5000 crs of new share capital have being given to preference share holders thus, further reducing the rights of common equity holders

• Investments have gone up from Rs 900 crs to Rs 5000 crs of which around Rs 4000 crores is invested in money market and other mutual funds

• Loans and advances to subsidiaries and associates have increased substantially

• A BUY back announced in falling markets @ the price of Rs.500/share in falling markets to support the stock price followed by a QIP 3-4 months later

• Over 215 subsidiaries spread across India and high number of inter company transactions (including capital and borrowings) and a regional auditor

• Stock Price Down from over Rs 1000/share in January 2008, to current levels of Rs 225/share and even below its IPO price

• A sluggish real estate market in India both in terms of pricing and volume

• Higher interest rates would hurt the margins further and also impact the real estate demand in India

• A trailing twelve months P/E of around 23 with sluggish growth and increasing debt

  In this Fantastic Four series you already know the first one i.e. DLF. Check out this space regularly to know the other 3 members of this team of Fantastic Four.

  The author of this article Rahul Sonthalia, is currently working with MPA Group and he is the Vice-President of its Portfolio Management Services Vertical. He loves writing and is a regular contributor to MoneyBol.com

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3. Shipping Stocks on the Shine

The key reasons behind this fall could be:

• Concerns regarding sovereign default in Europe

• Rising inflation and a tightening monetary condition in China

• Corruption charges on government agencies which brings down the attractiveness of India as an investment destination, and

• Sell of in the mid-cap space because of SEBI’s allegation on many companies for insider trading

A lot of people whom I know including even market participants asked me to suggest them few stocks that were beaten down in the down turn. Then someone also suggested me as to why should you bother about the stocks which have fallen and BUY them just because they are cheap and why not focus on very few stock in the mid-cap space which despite this turmoil have not corrected.

The Idea I am trying to say is that “There is no Smoke Without Fire” there has to be some reason because of which most of the mid-caps had fallen and so why not focus on the good quality ones which stood firm in the sell off or on the ones in which you see absolutely no reason for a sell off, but have still fallen in the markets. Picking the latter one requires more analytical and reasoning skills compared to the former.

So to hunt for some good stocks I took NSE Mid-Cap index as my sample base and out of 100 stocks there are only 10 stocks which have not fallen from there highs of early November and of them some of the really good ones which I believe have a good business, good track record of operational performance and strong management areand should be given a thought are Indraprastha Gas, Glenmark Pharma, Exide Industries, Educomp Solutions and Areva T&D.

Its just like when you go to see a horse race you never bet on the loosing horse but on the winning one and so I believe the same logic should be applied in the Equity Space and the looser should not be chased as they will be the first ones to be hammered in the next leg of mid-cap selling.

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2. Fantastic Four Stocks of India – Stock 2 Suzlon Ltd
3. Sector focus: Pharma

• Over the year the crude oil prices have risen by 2.93%, however YTD the gas prices have fallen by over 40%. The crude oil and the gas are more of less substitutes and this weird movement in their prices I believe could be because of the reason that crude gets more media attention and hence in order to show to the world that recovery is genuine the crude have being kept at a higher level compared to gas
• The Baltic dry index have fallen by over 17% (YTD) whereas the price of copper have risen by over 14% and that of other base metals like zinc or nickel or aluminum have also risen by a decent amount. Now Baltic dry index measures the freight charges that the shipping companies around the world charge to ship dry substance around the globe, the higher the real demand for metals is, the higher are the freight charges and hence the higher Baltic dry index. The reverse movement in to two I believe that could be because of a lower real demand for the metals, however the speculative demand in the futures market resulted in their price rise
• Gold and Silver YTD is up by 24% and 44% respectively, whereas the US equities is up by around 6% and the USD is only down by around 4% for the same period. This trio-logy also denies the correlation between the three assets. If the world is so bullish about the equities, with emerging markets like India being up by over 16% ytd, then why are they buying gold. They may say that they are loosing the confidence in the paper money, but then they should sell the USD which is also not down significantly. What has happened that in the first half of the year the gold rose because of EU crisis and people buying gold as a safe heaven and in the second half it rose because of a weakening dollar. Whatever reason they may say to speculate on gold, I believe that GOLD and Equity and Currency can not and will not move in the same direction for longer

With Indian rupee also gaining strength hurting the export oriented sectors, lack luster Q2 earnings perform and no upward revision in Sensex’s FY12 earning by broking houses and on top of that BIG TICKET IPOs and people borrowing DPIDs and buying Coal India IPO application, all highlights the same kind of scenario as in 2008 beginning. So my advice is please be cautious.

It all appears like a Deja vu…!!!

Author:Rahul Sonthalia, Research Head, Kredent

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Mumbai

• Mumbai is a ‘hot property’ when it comes to buying or selling real estate
• The buyers here pay a steep premium because a residential or commercial property is a coveted asset in this ‘city of gold
• While demand for budget flats is very strong, demand for commercial space is slowly picking up
• Real estate prices in Mumbai have gone up by about 24.0% till April 2010 as compared to prices in 2007
• Volumes in 1Q10 in Mumbai dropped compared to 3Q09 and 4Q09 due to price escalation
• Most developers focus on premium housing because of higher margins, though the demand for mid-income housing is high
• Buyers and investors may be advised to wait for correction and then enter the market

Delhi & NCR

• The October 2010 Commonwealth Games in New Delhi have proved to be a big trigger for real estate in Delhi and NCR region
• Rising demand for residential and commercial property in Delhi and NCR regions have driven the property prices quite high
• Further, new Metro links have provided boost to property prices in the city and NCR
• Volumes in 1Q10 in Delhi dropped compared to 3Q09 and 4Q09 due to price escalation
• The end-users can buy a home now as the prices are expected to go up further due to the ensuing Commonwealth Games
• As for investors, they too can enter and make decent profits in about a year’s time

Kolkata

• The property prices in Kolkata had risen by a whopping 59.0% in about a year-and half since 2007
• After the rally, realty prices have remained stable in the second half of 2009
• Prices in areas like Salt Lake City, Maniktala, Lake Town, Bhawanipur etc. 60-100 per cent in first half of 2009 as compared to 2007 prices
• Since the prices have already appreciated quite a lot, it is advisable to wait for the prices to correct and then decide on buying/investing

Bengaluru

• The lag effect of the global economic crisis which began in late 2007 and continued till end-2008 saw prices of residential and commercial spaces declining sharply in 2008 as well as 2009
• However, the fall in property prices was arrested in second half of 2009 as prices began to stabilize
• With the revival of the IT sector, the positive impact will be felt across all markets
• This may be the ideal time to buy or invest in residential and commercial properties

Chennai

• The fall in demand from IT professional for residential properties and IT companies for office space saw property prices correcting in the second half of 2008
• Property prices have stabilized in the second half of 2009 and with revival in demand expected from IT professionals and companies, one can expect prices to show an upward trend going forward

Author:Rahul Sonthalia, Research Head, Kredent

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