This is turning out to be a
different kind of 7/26 at D-Street. While this has happened before with
predictable results, this time I think it may prove rewarding to be wiser by
latching onto the ones which have been ground to dust. While in all cases, the businesses
may not be sound (as in real estate), in others, there definitely is potential.
Look at Parsvnath Developers @46 (down 20%). Though much has been written
about real estate and probably rightly so, in my view, PD surely doesn’t
deserve this price. I also believe that it may come back to 55-60 levels in a
very short time once this brouhaha dies down.
Another one that merits attention
is Tulip Telecom, down 28% @85. If
nothing was wrong with it yesterday @108, I just can’t see anything wrong with
it today @85!! The only thing for this knee-jerk reaction is that a couple of
brokers who are facing a liquidity crisis have sold pledged shares of this company
(and others who have crashed), triggering a sell-off in their shares. And this
has a good business of enterprise data connectivity going, where it is doing
pretty well.
Another on my list is Pipavav Offshore (of Nikhil Gandhi who
also owns Everonn) which is again down 20% @62. Their JV with Mazgaon dock was challenged by other bidders (Bharti Shipyard, L&T and ABG Shipyard) but the challenge was rejected and the JV is still on. It is only a matter of
time before they start getting orders from Mazgaon Dock. Also they have placed
equity with a few PE funds and other investors some time back at much higher prices. Among the prospective investors they are having talks with is DCNS, the French defence major, owned by the French government and specialist in manufacturing surface combatants, submarines, systems and equipments. It is likely to pick up a little less than 10% equity stake as per news reports a few weeks back. They have
stated their intent to place their shares with institutional investors
@110/share. Looking at all this, it would make sense to buy into this in such
times of crises.
There may be other stories like above
where there is nothing wrong with fundamentals but only the sentiment which is
playing havoc with their share prices. Once the dust dies down, they will be
back to their original prices, and probably more. All in all, a good time to lock into these now or on any further fall.
Since 7/26, Parsvnath Developers has further slipped another 20% to around 38. However, such ups and downs are not uncommon in the stock’s history. In Feb. ’11, it had crashed to its all-time low of 26 only to bounce 4 times to about 82 by October of the same year, in just 8 months. Then a month later it again crashed to 36, when the promoters, Jain brothers, alleged it to be the work of a bear cartel, only to bounce back to levels of 60 a few months later, again nearly doubling in a short period. To affirm their commitment, they themselves bought heavily in the market at the time of the crash.
ReplyDeleteCurrently @38, it is quoting at a discount of nearly 40% to its book value. Even CRISIL has estimated its fair value at 63. So rising to 60 in the next few months won’t be an unfair expectation, going by its history in the not too distant past, a return of nearly 58%. However, considering the roller-coaster rides it has had from ups to lows and again to ups in a matter of months, it is not for the faint-hearts. A truly high-risk high-return stock.
Tulip has truly vindicated my belief by bouncing back 27% in less than 10 days. As I had said, if there was nothing wrong in its business when it was quoting @108 on that fateful day, nothing could fundamentally go wrong in a day. And true to form, it has again reached 108 today. However, it must be remembered that it was quoting around 150-160 range not too far back, at reasonable valuations. And the news has just come in that they have tied up the funds for their FCCB redemption which is due sometime soon in August. This should act as a boost for the stock in the coming days. And even after the half-way return to pre-crash levels of 120, it is still quoting at a P/E of less than 5, too low for a niche technology service provider.
Pipavav DOC is in the same boat as Parsvnath and is yet to recover. However, barring any new developments, the above rationale for buying into this now still holds good.
Pipavav DOC has moved up by about 60% in 4 months, from 42 to 90 currently, on the back of continuous news flow regarding global firms buying stake in it. First, in Nov., they announced a deal with Saab, under which the Sweden-based defense and security company would invest Rs 201 crore for a 3.5% stake. Then, French warship maker DCNS proposed to buy close to 15% stake in the company for about Rs 1,350 crore (i.e. about 120/share). Apparently the French govt. owned DCNS has recently received an in-principle go-ahead from the French govt. for the deal.
ReplyDeleteAs mentioned earlier, there is a growing global interest in Indian defense-related equipment makers with Japanese conglomerate Mitsubishi expressing interest in acquiring stake in L&T's shipbuilding subsidiary. M&M thru its subsidiary is also quite active in this space though it is still at a nascent stage.