Hot stocks which are under the institutional investors' radar

 

 

 

 

 

 

 

 

 

 

 

 

 

“The institutional investor remains the bigger influence on individual trades simply because he has more money to support the order and that will have more of an impact on the stock.” The words of a noted Wall Street commentator underline the clout of institutional investors in the equity market. With an easy access to best minds and methods in investment research, institutional investors tend to be ahead of the curve when it comes to identifying the next multi-bagger.

Further, these investors, in most cases, hold on to their positions for a longer term. This makes it a worthwhile exercise to check which stocks institutions are buying into and the stocks which are not in their radar. While retail investors need to exercise caution and do their homework before taking an investment decision, a look at institutional activity can help considerably in providing the basic investment idea.

Institutional investors broadly encompass mutual funds, insurance and pension providers. Institutional interest in Indian equities has been rising over the years. In the eight months ended August 2010, they invested a net Rs 59,724 crore according to market regulator Securities and Exchange Board of India (Sebi) data. This is 48% more than the figure in the corresponding period last year. Typically, they have a strong focus on research and a medium-to-long investment horizon. This indicates that the stocks they invest in have reasonably strong growth prospects over the medium term.

A retail investor may not be familiar with sophisticated investment techniques, such as discounted cash flows (DCF) from a company’s future operations. Hence, tracking investment patterns of institutions may be a simpler alternative to long-term investing. “Mirroring institutional investment patterns could be one of the strategies employed by an individual investor. However, one need not blindly follow this strategy,” says Dhirendra Kumar, CEO of Value Research Online, a firm that tracks mutual funds and equities.

Investor Returns

Our analysis of the BSE 100 index has brought into focus 18 stocks, in diverse sectors such as automobiles, infrastructure, banks and IT where both FIIs and domestic institutions have simultaneously raised their stakes during period September 2009 quarter to the first quarter of FY10. A recent report by a brokerage house on mutual fund activity, also listed out several stocks which are currently the most popular picks of mutual fund equity managers and which also match our list in several cases. These include stocks such as Tata Motors, Reliance Industries and SBI amongst others.

The analysis indicates that 12 stocks in our study provided a positive return though it needs to be noted that the returns from mirroring the investment patterns of institutions are not guaranteed. Among these stocks, there were several picks from diverse sectors that easily outperformed the mere 6.4% rise in the broader Sensex, from the end of the September 2009. However, investors need to make their own independent decisions, as there is no guarantee of generating similar returns on these stocks in the future.

Menu for investors

The analysis brought into focus several stocks in diverse sectors that could be considered for investment on a long-term basis. Take for instance, Tata Motors. FIIs have been bullish on this stock, given the turnaround in the operation of its key overseas brands, Jaguar and Land Rover (JLR). This company on a consolidated basis posted a net profit (excluding extra-ordinary items) of Rs 1,495.1 crore for the year ended March 31, 2010, against a net loss of Rs 2,808.4 crore a year earlier. This was due to a pick up in global demand for its marquee brands such as Jaguar and Land Rover. In addition, the cost-cutting measures implemented by the company also helped. This strong growth momentum has continued even in the first quarter of the current financial year, with the company reporting
a consolidated net profit (excluding extra-ordinary items) of Rs 2,012.3 crore, against a net loss in the previous year. This stock trades with a P/E of 11.8 times on a consolidated basis and trailing four-quarter basis, and appears reasonably valued.

Similarly, State Bank of India, the country’s largest bank, has seen a turnaround in its performance in the June 2010 quarter. The bank was growing at a high rate till FY09, when it posted a 36% year-on-year growth in profit at Rs 9,121 crore. Its growth trajectory, however, came to a halt in FY10, as its net profit remained flat. In fact, its loan book growth dipped to a mere 8% in the March 2010 quarter.

Analysts were worried whether the bank would be able to match the industry’s growth. The bank’s performance in the June 2010 quarter has put those concerns to rest. With a 21% growth in loan book and a 25% growth in net profit at Rs 2,914 crore, the bank is back to its earlier growth track. This stock is currently trading at a P/E of 18 times (on a standalone basis), well short of its P/E of 25, at the peak of the last boom in January 2008. The UPA government’s emphasis on expanding infrastructure facilities across the country has once again highlighted the potential of stocks in this sector. A case in point is Adani Enterprises-controlled Mundra Port and Special Economic Zone (MPSEZ), which is a leading private sector player in its sector. It has benefited from a shift in port traffic to Gujarat, given a shorter distance between the company and user industries in the North.

The financial performance of MPSEZ over the past few years has been significantly better than its peers operating in Gujarat, like Gujarat Pipavav Port, as the company’s operational income grew at a CAGR of 36.6 % to Rs 1,495.5 crore during the period March 2007 to March 2010. Also, MPSEZ’s net profit grew at a CAGR of 53.4% during this period. 

 

No doubt, Mundra Port trades at more than 40 times on a trailing fourquarter basis, but given the strong growth expected over the next few years, investors could consider this stock. Similarly, Adani Enterprises, which is aggressively ramping up its presence in power generation, and its recent decision to buy a major stake in Indonesian coal mines, should help it drive its sales and net profits significantly over the next 2-3 years. And while this stock trades at a consolidated P/E of 33 times, considering its growth prospects, it could be a reasonable buy for the long term.

Of course, there are well-tracked stocks in our list, like Reliance Industries, which currently trades at a P/E of 17.3 times on a trailing basis, and is quite an expensive stock. This stock has also underperformed the market over the past three months over concerns of fall in gross refining margins (GRMs) industry-wide. The company had earlier aggressively grown its net sales by 86.7% in the first quarter of FY10, considerably quicker than the pace of FY10, helped by the ramp-up in operations of the erstwhile Reliance Petroleum.

However, net profit growth of 32% in the current financial year, lagged the growth in its sales in the quarter under review. However, considering RIL’s widening footprint in the global oil sector through recent acquisition of shale gas fields in North America, it could be a value buy for a long-term investor.

And with the exploration sector in the country witnessing rapid expansion, it also makes stocks like Welspun Corp attractive, which supplies submerged arc welded pipes to the oil sector. This stock is attractively valued at 8.5 times on a trailing basis.

Another stock worth mentioning is HCL Technologies, a top-tier IT services company in the country. The company has seen institutional buying in recent times following the robust growth in its volumes in the past two quarters. The company is expected to maintain the tempo given its plans to revamp its BPO operations and the benefits of its inorganic strategy (see stock idea on page 2). Thus an individual investor could consider some of the stocks that large, institutional investors are betting on and hope to earn descent returns over the long term.

How we did it

We selected the companies in the BSE 100 index for the analysis since it covers nearly two thirds of daily trading volumes on the Street and over 90% of BSE's total marketcapitalisation. We pulled out the shareholding pattern of stocks from the index. As there are several stocks in this index that are listed only over the past 12-15 months, we limited our analysis to the September 2009 quarter and the latest available quarter. We then identified stocks in which both FIIs and domestic institutional investors have both simultaneously increased their stake during our period. 

Some fundamentals to help you pick stocks

Rather than judging a stock by its price movements alone, a fundamental analysis delves deeper into a company's actual business, economic well-being and future prospects.

It includes a study of quantitative measures like earnings, growth, revenue and finance statement, and qualitative parameters like CEO or key executive's performances and strategy. A fundamental analysis aims at gauging the true intrinsic value of the stock.

Here are a few values that can help investors base their decisions on:

Price to earnings (P/E) ratio :

 











This is a popular formula that looks at the relation between a stock's price and the company's earnings. P/E is a stock's price divided by the earnings per share.

The ratio indicates what the market is ready to pay for the company's earnings. A high P/E suggests that investors are expecting higher earnings' growth in the future compared to companies with a lower P/E.

A low P/E ratio can suggest that a stock may be under-valued , or that investors expect poor future earnings.


 Price to sales (P/S) ratio:

 











Some companies have no history of earnings. But investors cannot afford to over-look these young, budding companies. A price to sales (P/S) ratio looks at the current stock price relative to the total sales per share.

A P/S ratio is the stock's price divided by the sales price per share.

The lower the P/S ratio, the better is the stock valued . However, this ratio must not be viewed in isolation when deciding on a nascent company.


 Price to book ratio:

 










This is calculated by dividing the share price by the book value per share. Price to book (P/B) ratio is of great importance to value investors who are on a constant search for under-valued and ignored stocks.

A P/B ratio is the share price divided by the book value per share. Book value is the sum of all of a company's assets minus its liabilities.

A manufacturing company that requires more assets will generally post a drastically lower P/B ratio in comparison to a consulting firm providing some service. A company trading at a low P/B ratio, in comparison to others in same sector, is perceived as under-valued relative to its share price.


Projected growth in earnings ratio:

 








A projected growth in earnings (PEG) ratio gives an insight into the future earnings growth.

A PEG ratio is the P/E divided by projected growth in earnings .

The lower the PEG ratio, the better the value, as the investor will be paying less for each unit of earnings growth. A lower ratio is considered cheaper and a higher ratio is expensive. Since this relies heavily on projections, the conclusions may not always be accurate.

Dividend payout ratio:

 








This ratio is obtained by dividing the annual dividends per share by the earnings per share.
It is a measure of a company's payouts to investors in the form of dividends versus its earnings per share.
It also an indicator of how sustainable the dividends are, especially for investors looking for passive income.

Split Bonus and Gains

It is surprising but yet it is true, divide a corporate pie into different slices and the sum of these slices will be larger than the original. Yes, we are talking about the corporate actions such as split and bonus announced by the company, wherein the number of shares increases in the hands of existing shareholders though their proportionate ownership remains unchanged.  In theory, these actions should not leave the share-holders any better than pre-announcements of these corporate actions. But it has been observed that in most of the cases there is an increase in the investor’s wealth after these announcements. Now let us check how these actions by the company have made the investors wealthier. Before arriving at any conclusion, we analysed data of all such split and bonus announced by the companies, since the start of year 2009.

Split
Stock split is a process under which high face value shares are split into lower face value shares. Some of the popular way of splitting shares is splitting share of Face Value Rs 10 each to Rs 1 Rs 10 to Rs 2 (10:2), etc. In total of 78 splits announcements made since January 1, 2009, the most common split was 10:1; almost 50 per cent or 37 companies announced splits in this ratio, followed by 10:2, which was announced by 23 companies. If we consider the performance of these companies post-announcement, we find that out of total 78 companies, there are 61 companies whose scrips are trading above the price prevailing on the date of announcement of split in shares.

For example, one of the highest gainer is KGN Industries that announced split in the ratio of 10:1 on June 09, 2009 when it was trading at Rs 457.5. The CMP (April 13, 2010) of the scrip is Rs 367 and if we adjust this CMP for the split ratio we get price of Rs 3670, which is 702 per cent above the price when split in shares was announced. Of course, one should not forget that there is a big question mark on the fundamentals of KGN Industries. The median gain in the scrip prices after their announcement till today is 39 per cent. But some may argue that even the market has doubled since low of March 2009. Therefore we compared scrip return with the market returns (Sensex) in the same duration. We found that on 54 counts the scrip returns beat the market returns. The median excess return of scrip over market was 23 per cent. Now let us check how companies declaring bonus have performed.

Bonus
Bonus issue that is also known as stock dividend in many parts of the world is nothing but capitalization of reserves. The shareholders receive additional shares on the proportionate basis of the original holding but the ownership remains unchanged. Earlier, it was believed that a company announces bonus issue only if it is confident of maintaining the dividend rates. This would have been received positively in the market about the company’s performance and hence prices would increase. Other logic was that bonus issue would increase the float of stocks and hence the liquidity of the shares. Since the start of January 2009 there were 51 companies, which have rewarded their shareholders by issuing bonus shares. There is no particular ratio in which companies issue bonus shares, it all depends upon the existing outstanding shares and the reserves a company has.

If we analyse the returns of these 51 bonus issuing companies, 42 companies are trading above the prices prevailing on announcement dates. The median gain for these companies is 28 per cent for the same period. One of the highest gainers is Linkson International, which announced bonus issue in the ratio of 2:1 on May 8, 2009 and price that pravailed then was Rs 58.85, but at CMP (April 13, 2010) of Rs 148.8 and adjusting it for the bonus the return for a shareholder is a whopping 659 per cent. Let us now check how they have fared against the market returns. The median return of the market is nine per cent, whereas for the returns given by these scrip is 28 per cent.

Split Plus Bonus
Now there are certain companies who have announced both split and bonus and it seems that average stock returns of these companies have beaten the returns of the companies in earlier two categories, that is split and bonus. There are altogether 17 companies that have announced both split and bonus since the start of January 2009. Out of these, 13 companies are quoting above the price on the date of announcement. The median returns of these companies are 49 per cent, well above the median market return of 17 per cent for the same period. For example, one of the highest returns is given by the Avance Technologies, which announced bonus issue in the ratio of 4:1 and split their shares in the ratio of 10:1. After adjusting for the prices for the bonus and split the stock return is an astounding 776 per cent.

Invest with Caution
From the above discussion it seems that investing in companies, which  have announced a bonus and split makes sense since these companies offered returns better than the market returns, but there are certain caveats.

In case of splits, it has been observed that it is primarily momentum stocks that announce split and hence one needs to be vigilant while picking these shares because one might find getting caught on the wrong side of the price movement and may lose money.  For example, Austral Coke & Projects, one of the momentum stocks, which announced split in the ratio of 10:1, has given negative return of 70 per cent since the date of announcement of splits.

It is not that only momentum stocks are giving negative returns, Bharti Airtel and Mahindra & Mahindra, also have given negative returns after split of the shares. Similarly, a company giving bonus issue also does not guarantee better returns. A case in point is Jaiprakash Associates, which has underperformed the Sensex by 19 per cent since the date of announcement of bonus. Therefore it is clear that there is no easy way of making quick money in the stock market  without taking that extra risk and one should take all the precaution of picking stock, albeit taking into account these corporate actions with due diligence.

Turnaround Candidates

Will these companies come out of the eclipse this year?

Despite volatility, the Sensex is testing higher levels and is up by almost 94 per cent from the lows it reached in March this year. Investors too are making the most of this opportunity by sticking to fundamentally strong counters and keeping the investment strategy simple. But, on second thought, doesn’t it also make sense to be different from the rest and still chalk out a different investment strategy and pick stocks that the markets have ignored due to the companies currently incurring losses, but having potential to catch investors’ fancy sooner rather than later.

In keeping with this strategy, we, at Dalal Street Investment Journal, have selected turnaround candidates from a host of loss-making companies. It might sound a bit odd, but it does make sense at this point of time to go for such companies which despite

Despite volatility, the Sensex is testing higher levels and is up by almost 94 per cent from the lows it reached in March this year. Investors too are making the most of this opportunity by sticking to fundamentally strong counters and keeping the investment strategy simple. But, on second thought, doesn’t it also make sense to be different from the rest and still chalk out a different investment strategy and pick stocks that the markets have ignored due to the companies currently incurring losses, but having potential to catch investors’ fancy sooner rather than later.

In keeping with this strategy, we, at Dalal Street Investment Journal, have selected turnaround candidates from a host of loss-making companies. It might sound a bit odd, but it does make sense at this point of time to go for such companies which despite odds are thinking out of the box to pull themselves out of the quick sand and turn themselves profitable. The ‘Turnaround Candidates’ story is an annual exercise for DSIJ, where we find such hidden gems which are currently making losses but have the potential to turn around during the year and give better returns to the investors. It is easier to pick such stocks when the economy is on the upturn and everything is hunky dory, but in a gloomy scenario when the uncertainty increases, selecting such stocks becomes tougher.

The one trend that we have seen since 2004 is that the number of loss-making companies has declined drastically after the economy started to pick up pace. It should be noted that there were about 1082 loss-making companies in 2004. This number came down by 30 per cent to 755 companies in 2005 and further fell by 38 per cent to 469 companies in 2006. In 2007, when the economic growth was at its peak, the loss-making companies fell to just 249 companies. But it was in 2008 that economies across the world, including India, felt the jitters of the global financial crisis. Result: the number of loss-making companies increased to 349. While the global economy is yet to come out of the woods completely, many would expect this number only to increase. On the contrary, what’s heartening to know is that India Inc has showed strong resilience in FY09 and this number has actually declined by as much as 50 per cent to just 173 companies! If we dissect the 2009 numbers further, we see that the loss-making companies have declined drastically in the B group, S group and – to our own amazement – the Z group! Thus, while in B group the number of loss-making companies has come down to 69 from 128 companies previously, in the S group the number has fallen to 7 from 18 previously and in Z group the number is a mere 5 from 124 previously (refer table). This, according to us, is quite an achievement considering that FY09 has not been too kind on India Inc. Besides, we also believe better cost management initiatives and the amendments to the AS 11 could be the reason for this drastic drop in loss-making companies in FY09.

The fact of the matter is that investors need to see the advantages of holding a turnaround candidate. Firstly, when other companies would be doing business as usual, managements of turnaround candidates would be busy thinking out of the box to bring their companies into profits. Thus, this is the time when management initiatives would be at their best, with the management coming up with innovative ways to drive the topline and manage the costs. Secondly, with the worst already being discounted in the price of these companies, there may be very limited downside risk in these companies. Thus, even if the market corrects for some reason, there is a good probability that these counters would fall the least. In fact, if these companies start showing signs of turning around, they could turn investors’ favourites and might end up giving fantastic returns. The best example of this would be the performance of our last year’s recommendations, which have given an average return of 44 per cent, while the Sensex gave returns of 3.73 per cent during the same period. But, when these companies turn around into profits, the return is even better. For example we had identified Crompton Greaves as one of the turnaround candidates in 2002, which was then trading at Rs 51. This company not only turned around, but has also given fantastic appreciation considering the fact it is currently trading at Rs 1,535 (after adjusting for splits). As in the past, this year too we have gone through the painstaking process and selected five turnaround candidates which we feel would do well in the coming 18-24 months. We reckon that these companies would not only turn around, but also give good returns on the bourses if investors continue to be patient with these counters.

Order Book Getting Stronger
Artson Engineering
BSE CODE: 522134        CMP: RS  48.65

Artson Engineering (AEL), which is in the business of developing products and systems in fuel handling and tankage construction activities in the refinery sector, is a perfect example of how a series of events can take the company to abyss levels. It was a chain of events that resulted into AEL incurring losses in FY09. While AEL was already reeling under pressures in FY08 and was referred to the Board for Industrial and Financial Restructuring (BIFR) on account of shrinking topline as well as bottomline, the general economic slowdown

further reduced the contractual work, thus impacting its topline.

The delays in receipt of client-supplied materials worsened the problems and resulted in contractual time extensions. These contractual extensions eventually contributed to unexpected over-run expenses. So in FY09, the company posted a topline of Rs 34.40 crore and a loss of Rs 17.14 crore as compared to Rs 52.03 crore and Rs 12.33 crore respectively in FY08 (18 months). But there are certain factors which are now indicative of a revival of positive forces in the company. The current order book of the company is around Rs 248 crore which is around seven times of its FY09 revenues. The strong backing of Tata Projects’ management (after it acquired a 75 per cent stake in AEL in January 2008) also provides comfort to the investors and last but not the least, the company has posted good topline and a decent bottomline in Q1FY10 (See table of last five quarters). The impact of TPL is vindicated from the fact that AEL’s current order book stands at Rs 248 crore.

Of the total order book position, Rs 191 crore belongs to HPCL and the Mittal Bhatinda Refinery which is to be completed by June 2010. So the topline does not seem to be any problem going ahead. The margins too are expected to be better in these orders. Although there are these many positives in the company, it may not turn around in FY10 as the higher interest cost and brought forward losses may impact its bottomline. But we expect the company to turn black in 2011. We foresee a decent capital appreciation from the counter and one can therefore look at the counter with a 15-18 months’ perspective.

Holding The Reins Tight
Finolex Cables
BSE CODE: 500144        CMP: RS 43.00

Finolex Cables (FCL) a manufacturer of copper-based electric and communication cables looks a perfect

turnaround candidate. Slump in demand and a sharp fall in copper prices globally forced FCL to undersell its products by 35 per cent in FY09. Thus, with realisations dropping, revenues took a hit along with the operating profits getting squeezed further. A sharp jump in interest and the depreciation cost coupled with forex derivative transaction losses pushed FCL into losses of around Rs 35.49 crore - its first in the last ten years. But the fortunes for FCL are changing, the primary reason being the escalation in demand for its products. Though FCL was not able to quantify this in terms of order book in our discussion with the management, they assured that currently whatever is produced is being sold in the market. Secondly, FCL has already increased its product prices by 15 per cent and with copper prices in an uptrend, FCL wouldn’t hesitate to increase its prices further. Besides, its new electric cable plant at Roorkee is strategically placed to cater to the strong demand of the northern markets. That apart, FCL has also implemented a cost rationalisation drive, and tight control on its manpower and energy cost. While its manpower cost increased only 7 per cent in FY09 compared to 38 per cent in FY08, FCL brought down its energy usage by 7-8 per cent. Besides, with a tight control on its working capital requirements, it is now saving on interest cost. Explains M. Viswanathan, Director & CFO: “At the end of FY09 the receivables position or inventory are all at lower levels than the previous year, thus enabling us to squeeze that much cash flow out of the balance sheet, which results in lower interest cost.” But FCL’s strategy to move up the value chain will make all the difference from the coming fiscals with it now focusing on manufacturing high voltage cables up to 66 KV and CFLs. Though a very negligible contribution to the revenues today, it will help FCL to place its sales growth in a different trajectory altogether. With its market cap to sales of just 0.50x, FCL looks an attractive bet. What will sweeten it further are the liquid investments worth Rs 143 crore, which is almost 22 per cent of its market cap.

A Strong Dose Of Vitamins
Ranbaxy
BSE CODE: 500359        CMP: RS 335.35

Ranbaxy, which snapped its four consecutive quarters of losses this quarter (Q2FY09), is one of the companies that we feel will turn around and will continue its performance going forward.  The slide of one of the biggest pharmaceutical companies of India from its top position can be attributed to factors like banning of 34 products by USFDA due to non-compliance with their norms and appreciation of the dollar by 22.9 per cent last year. All this was enough to hammer the price of the company’s share by 40 per cent compared to a 33 per cent fall in BSE HC in CY08. However, things are changing for good now. Daiichi Sankyo, the majority owner of the Ranbaxy, has overhauled the management of the company giving a new thrust to resolve the issue with the US FDA. The rupee has largely remained stable and is not appreciating. Last but not the least, the company has submitted a corrective operation action plan to the US FDA for its Paonta Sahib facility and has sent a request for the re-inspection of its Dewas manufacturing facility. The management is hopeful that it will start exporting from the Dewas facility by December 2009. Early signs of revival are clearly visible in the com-pany’s Q2CY09 results. Its net revenue on a consolidated basis for Q2CY09 declined on a YoY basis by 0.7 per cent and was Rs 1,879.2 crore but witnessed good improvement sequentially and was up by 19.2 per cent. The net profit for the company declined by 55.7 per cent and was Rs 65 crore before any exceptional item. Nevertheless, if we take the exceptional item the fall is just 1.9 per cent. What is comforting is that the company has returned into operating profit after two quarters. We feel that the management action will start yielding results and will give good capital appreciation for its shareholders.

Keeping Good Health
Fresenius Kabi Oncology
BSE CODE: 532545       CMP: RS 72.65

Not many would have heard the name Fresenius Kabi Encology as this is the new avatar of Dabur Pharma. The company was taken over by the Germany-based player Fresenius Kabi in 2008 and that should help it post good growth in the coming quarters due to strong parent reach and product profile. The company has set its vision statement to be a ‘world leader in Oncology Genercis’ and is moving in that direction. Till now the company has been more focused on the semi-regulated and unregulated markets but as a part of the growth strategy it wants to focus aggressively on the regulated markets of the US, Europe and Japan.



Currently, the company gets 70 per cent of its revenue from exports and we believe that this would continue to dominate the company’s revenue stream even in the future. Last year, the company posted a loss of Rs 77.7 crore on sales of Rs 274.1 crore. One of the reasons for suffering this huge loss was due to a change in management control wherein the company settled ESOPs in cash and thus cancelled them out. At the same time the company also terminated the previous distribution agreement by paying termination charges. It also commissioned its second manufacturing unit at Baddi which resulted in higher depreciation and operational costs. We feel that these are expenses which are one time in nature and hence a recurrence of the same may not be there in the next balance sheet. The effect of the turnaround is visible on the company’s first quarter numbers wherein it reported sales of Rs 102.57 crore with a profit of Rs 26.81 crore. We are expecting the company to report net profit in the region of Rs 100 crore for the full year. With equity capital of Rs 15.82 crore (FV of Re 1), the EPS for FY10 would be Rs 6.32. The CMP of Rs 72.60 gives a P/E of 11.48 times. We feel the company should offer at least 30 per cent capital appreciation in the next six months with a price target of Rs 95.

Steering It Well
Sona Koyo Steering Sys
BSE CODE: 520057        CMP: RS 12.20

Sona Koyo Steering Systems (SKSS) is largest manufacturer of steering in India for passenger cars and utility vehicles. It slipped into red and posted loss of Rs 31.03 crore (profit of 25.19 crore in FY08) against sales of Rs 693.13 crore for FY09. The reason for such fall in profit was due to increase in cost of raw material and interest expenses Nevertheless, things have improved now, price of commodity has come down, and interest rate has eased. Even there has been revival in the down stream companies who use company’s product. Apart from this company has launched Profitability Improvement Programme (PIP) to improve the profitability. SKSS took steps like working capital management, increasing localization, customer negotiation, employee cost restructuring and reduction in sales and administration cost. These steps have clearly shown its result in Q1FY10 results. SKSS posted profit of Rs 0.86 crore against loss of Rs 1.63 crores during the corresponding period of the previous year. Overall sales increased by 20 per cent in the same time. Total sales posted for Q1FY10 was Rs 187.08 crore. What is remarkable is improvement in EBIDTA it increased by 57.6 per cent in absolute terms and as margin it increased by 200 basis points and stands at 8.8 per cent now. What makes us believe that this company will give good capital appreciation to the investors is company’s good clientele that includes Maruti, Hyundai etc and future order from Tata Motors for its 'Nano' car. Furthermore, company’s couple of plants will start production from November 09 adding more to their topline.

50 cash rich companies

What is cash rich company?Cash and bank balances indicate the amount of cash that a company has on its books at a specific point in time. The position of cash and bank balances net of debt is one of the indicators of financial strength and liquidity of the company. Cash and bank balances include balance with bank, term deposit with banks and cash in hand/others.

Importance of cash rich companyAnalysts suggest that a cash rich company is a sign of financial strength while a small cash position is a possible caution or warning sign. The cash rich companies have an edge over cash strapped companies as cash can be used to fund operations and acquisitions, to buyback shares and to repay debt. It also helps the company to survive in torrid times of recession. A dark side of cash rich company is that too large of a cash position can often signal waste of funds as the funds are placed idle or produce very modest return.

Data CoverageWe have taken all the listed companies on the Bombay Stock Exchange. We have taken only those companies whose cash value net of debt is greater than Rs 300 crore and sorted the top 50. We have not taken the investment value into consideration since some companies have invested in government bonds or group companies.

Interestingly, 8 companies out of top 10 cash rich companies by value were PSU companies.

                                                                     * All figures (Rs in Cr)

Company	Investments	Cash and	Total	Net	Market
		Bank Bal.	Debt	Cash	Cap
BHEL	6	10329	167	10163	111713
SAIL	37	18486	8666	9820	73108
NMDC	72	9740	-	9740	144910
Infosys	-	9695	-	9695	137855
M T N L	465	4803	-	4803	5868
Rajesh Exports	385	5537	1951	3587	2066
Natl. Aluminium	896	2869	-	2869	23440
MMTC	399	6022	3209	2814	168240
Hind.Zinc	6929	2719	9	2710	34645
Bharat Electron	-	2658	2	2656	11450
Cairn India	171	6527	4356	2171	49854
TCS	1614	2698	563	2135	117598
Engineers India	151	1921	-	1921	6326
Container Corpn	168	1767	49	1718	14742
Oracle Fin.Serv.	1	1549	-	1549	15173
Sun Pharma.	1859	1669	179	1490	24953
Hind. Unilever	288	1864	434	1430	58484
Siemens	245	1322	11	1311	18836
Neyveli Lignite	722	5482	4210	1272	22909
Maruti Suzuki	3277	1987	759	1228	47938
ITC	2507	1318	187	1132	88101
Eicher Motors	6	1260	166	1094	1527
PTC India	533	1052	20	1032	2597
Edelweiss Cap.	270	1721	762	959	3387
HCL Technologies	1377	1011	55	956	22947
Glaxosmit Pharma	730	957	6	951	12694
Bosch	867	1071	264	806	13153
Lak. Mach. Works	104	627	-	627	1766
Hinduja Global	1	665	87	578	1038
India Infoline	315	627	52	575	4248
Ambuja Cem.	328	852	289	563	15192
Pfizer	1	544	-	544	2492
Motil.Oswal.Fin.	49	543	0	543	2444
Tech Mahindra	435	538	-	538	11108
Ingersoll-Rand	0	515	-	515	1038
ACC	517	991	482	509	15905
Aventis Pharma	5	497	-	497	3405
GlaxoSmith C H L	-	471	-	471	4867
Apar Inds.	0	611	161	450	497
Anant Raj Inds	309	626	210	416	4295
Hind.Copper	-	529	113	415	21132
JM Financial	603	525	134	391	3203
Thermax	144	373	4	369	6642
Alstom Projects	-	368	1	367	3820
Indiabulls Sec.	52	462	112	350	1348
A B B	61	348	0	348	16987
Bajaj Finserv	6595	642	311	331	4271
Heidelberg Cem.	0	338	10	328	1015
Dredging Corpn	30	332	6	326	1409
Info Edg.(India)	18	322	0	322	1914

Source: Capitaline

Disclaimer: Datawatch is purely intended to reveal interesting statistics. Moneycontrol sources all price information from BSE/NSE and company information from Religare Technova. Moneycontrol is not responsible for inaccuracy/non-updation of data. There is no intention whatsoever to arrive at any conclusion or recommend any stocks or sectors. Please consult your financial advisor before taking any investing decisions.