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Sunday, January 13, 2013

Your questions on L&T, Educomp, Phillips Carbon Black, HCL Infosystems and RCOM!

Valued readers have sent in these queries:

Question: I am holding 250 shares of L&T @ 1640/ share since two months. Now looking at the cmp of it i am bit confused whether to hold it or sell it. please advice

Answer: L&T had a glorious year 2012, where it ran from a bottom of 961 to a peak price of 1721. You seem to have entered the party late and entered close to its recent highs. The scrip is not cheap fundamentally and hence correcting a bit now. It is also seeing lot of brokerage/analyst downgrades, which typically impact retail investor mentality and force him to liquidate in loss.

However, looking at charts, not everything is lost. There is support at 1520 and final strong support at 1470. My feeling is that 1470 levels may not break, hence you may have to hold for about 3-6 months for the scrip to regain its upward momentum. 1720 and 1875 are good resistance levels, where you can book partial profits.

Question: I am one of the persons stuck with Educomp and my avg price is still around 500. After going through your analysis I thought of averaging it but on BSE website I found that promoters are reducing their stake in the company. Also most of the communities are warning against this company.

Could you please share your opinion regarding promoters reducing their stake

Answer: Promoter holding in Educomp is around 43.43% and it has come down from 49.23% two quarters back. However, FII holding is going up consequently from 26% to 31% and retail investor holding is still flattish at 11%.

One of the Issues for Educomp is its declining revenues due to slowdown in this space, and both topline and bottomline have deteriorated in last few quarters. If a firm is able to generate growing revenues and improvement in margins, the share price reflects that with a bullish trend. Otherwise, the scrip will stagnate at lower levels. That is what is happening with Educomp. In addition to this, debt is also high at Rs 1892 crores.

On charts, the scrip has bottomed out, and from past 6 months, scrip is rangebound between 127 at lower levels and 178 at higher levels. One strategy can be to average at lower levels of this range and exit partly at higher levels of this price range. Once this range is broken on upside, 228 and 268 would be the possible target levels on higher side. 500 kind of price target would be a long time away.

Question: In some of your old post you talked about covering Phillip Carbon. Did you get chance to look into that. I find that company quite attractive and want to invest for long term. Your view will help me in deciding

Answer: Phillips Carbon Black has had a tough Sept, 12 quarter, where it posted a decline in revenues and posted loss of 32.91 crores. This is because tough competition in this space and cheaper Chinese imports of Carbon Black. Indian govt has imposed duty on imported Carbon Black to safeguard this industry and hence for next few quarters financials should recover.

Firm is a regular dividend paying company, stable promoter holding, attractive Book Value of 177, and is trading at significant discount to its Book Value.

Technically speaking, support levels are close-by at 87 and final support at 75, which is the lowest price level of past four years. Price is range bound from past 12 months and any action would happen only when resistance level of 120 is broken. After that, levels of 160 can be seen. Long term investors can certainly buy on dips and accumulate slowly.

Question: Plz give opinions on Hcl Infosystem , should buy for long term at cmp.

Answer: HCL Infosystems is undergoing a transformation from a Hardware manufacturing and distribution business to Integrated Solutions provider. However, the journey is going to be ardent and long. The bread and butter Hardware Division is extremely low margins business, and hence there was a rumor few months back that HCL is considering selloff of Hardware division to Lenevo. HCL Infosystems has had a few distribution wins at Dell, Lenevo and Apple.

Current stock price crash for HCL Infosystems factors in all of this bad news - low margins, adverse currency movements and range-bound topline revenues for the firm. The current stock price is even 40% lower than the lows of 2008 bear markets.

Technically speaking, stock price is extremely range bound from past 12 months and no sudden uptake is expected. Long term investors can slowly accumulate at dips, close to 35 or so, and once overhead resistance of 52 is crossed, you can expect levels of 57 and 64 respectively. Only for very patient investors, who can also benefit from good dividend payout of the firm.

Question: I have invested in RCOM. At present I have 5000 nos of stocks with me with the average of Rs.127/-. I am ready to hold for next 1 or 2 years.Please suggest should I do ?

Answer: Telecom sector on an overall basis is undergoing slow-down and consolidation with almost all the firms losing customers. This has happened after years of aggressive growth in this sector and some saturation is obviously expected after the total wireless subscriber base in India has reached highs of 89 crore subscribers recently. Thus, there is very little free penetration base is left for the firms to explore.

If you look at last five quarter topline of RCom, it is fluctuating around 2650 crores of quarterly revenue. Bottomline is in red for three of past five quarters. However, the positives are high promoter holding, high Book Value, dividend record and negatives are high debt pileup.

Technically speaking, firm is available at 40% discount to its 2008 lows. Hence price has severely corrected over the years and has seen painful lows of 46 recently. From 46, RCom has seen relief rally to 84 and is again facing overhead resistance. The whole price area of 61 to 110 is infested with several resistance and congestion zones. Any meaningful movement towards your cost level of 125 would happen only after price breaks resistance levels of 88, 101 and 110 respectively. Level of 70 seems to be a strong support now and is unlikely to break, so you can continue holding this scrip for next 6-12 months and you should see levels of 120 and 155 respectively for you to book partially.

1 comment:

  1. Hi Naren ,

    Today i was watching CNBC Awaz and Mr Amit Rathi of Anand Rathi Securities talked in great confidence of Sensex crossing 24k mark in 2014 & forecasted that he saw Sensex at 50-60k in span of 10-15 years from now... Sometime back JP morgan had also forecasted in 2009 that sensex will cross 50k in 9 years..

    What do you think on this ? .. also please suggest how to pick specific equities in this case of 10-15 year horizon ??? Should we aim only at index 30 stocks ?


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