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Monday, March 4, 2013

Can Alok Industries be a multi-bagger stock?

Question: Can Alok Industries be a multi-bagger stock? I would like to know your views about Alok Industries, as the management has announced reducing debt by exiting its non-core business.


Textile sector had been one of the India’s most export oriented sector from past many decades, until the more glamorous IT sector took over. Being a labor intensive and low margin business, South-Asian countries such as India had an obvious head-start in this sector to compete internationally. However, in past few years, the challenges have surmounted the expectations and textile sector is now known as one of the most doomed sectors of our economy. Textile companies present in stock market are at their lowest low and receive almost no analyst coverage or media attention and total lack of investor interest.

Alok Industries is a leading textile manufacturing company and its main business involves weaving, knitting, processing, home textiles, ready-made garments and polyester yarns. It exports almost 35% of its products to over 70 countries internationally. The firm has demonstrated sustained growth in revenues and operating profit in the past few years. The firm is under significant burden of debt and huge interest expense which has affected its bottom-line growth.

The firm has grown with considerable equity dilution, and number of paid-up shares have increased from 19 crore shares in 2009, to 78 crore shares in 2011 and 82 crore shares in 2012. Promoter ownership is low at 34.16% only, with over 30% of stock available with general public. The challenge with this significant level of share issuance is that stock prices are often decided by pure demand and supply dynamics. With large number of shares and shareholders available in the market, there is never a significant amount of buyer pull or stock scarcity getting developed and always a significant seller quantity is available in the market which succeeds in keeping the stock price in a constant downward pressure.

Fundamentally speaking, this is a regular dividend paying firm however the firm has more than Rs 10,000 crores of loans in its books. Thus the market cap of just about Rs 1100 crore and its low stock price is justified due to its very high levels of debt.

Looking at charts, Alok is at its lowest level since the last one decade. It’s currently trading much lower than even the 2008 bear market levels, and there is no visible support on charts. Last few days fall has been vicious, and this now seems to be a climax situation, and this fall may not continue for long. However, the total absence of any support is a worry some situation. Typically one would get enough signals on charts when the bear market for Textile firms end, or gives a preliminary signal of ending. So technically there is no hurry to try and catch and falling knife. Please wait for a double bottom kind of pattern on charts, when some buyer support emerges and only then taking a position in Alok Industries is recommended.

Question: I shall be thankful for your technical advice on NMDC as I feel it is a good company with a reasonably good business model and no debt with good cash reserves though governed by government whims. I would be thankful for the right buy and sell signal.


NMDC is a state owned Navaratna firm and is India's largest iron ore producer and exporter. NMDC produces 30 million tons of iron ore annually from its 3 fully mechanized mines in Chhattisgarh and Karnataka state. Other than Iron Ore, firm is also involved in the exploration of other minerals such as Copper, Rock phosphate, Limestone, Dolomite, Gypsum, Diamond, Tin, Tungsten, Graphite etc. NMDC is also venturing into development of high value minerals like gold, diamond as joint ventures in some African countries and is also venturing in Australia and USA through joint ventures.

Good things about NMDC stock is its very low percentage of retail holding, with only about 0.91% of stock available with general public. Firm has given 550% of stupendous dividend in 2012 itself. Hence returns from dividend alone on current market value of NMDC is about 4% per annum, which is one of the highest dividend returns in this sector.

Fundamentally, the quarterly revenues have shown a downtrend due to iron ore ban, lower production and fall in sales. Situation would improve going forward as economy improves and iron ore demand picks up, as NMDC is largest Iron ore producer in the country. The firm has zero debt on its books and over Rs 3000 crores of cash in its books at the end of year 2012.

Technically on charts, NMDC is poised at a very delicate situation. It is currently trading at year 2011 lows of Rs 134, which will provide a considerable support to stock price. Stock should receive support at these levels and should touch Rs 154 as the first resistance level. Level of Rs 198 would be the second resistance level for the stock, as overall market improves in next 3-6 month timeframe. Levels of 240 and 300 should be achievable in next 12-18 months timeframe as demand improves and overall market picks up.

Question: Considering that Fossil fuel the main source of Power generation is getting depleted, is it advisable to buy shares of Solar Cell producing co. like WEBEL SOLAR? The price is rock-bottom, hovering around Rs 10, a 52 WEEK Low.


This is an interesting question and bears a quick thought on the future of World economy, being driven solely by Fossil fuels today, which are obviously a depleting commodity. A few years back, Natural Gas (NatGas) was a hot commodity being traded at $9 a unit at international commodity exchanges and about a year back, NatGas was surprisingly trading lower than $2 a unit. This was even lower than the production or transportation price of NatGas. So refineries started burning NatGas produced as a by-product at their units, instead of selling this coveted energy product in the markets! So what went so wrong with NatGas?

There was a major technological breakthrough in Natural Gas production known as fracking, which caused the market price of NatGas to drop even below its Production or Transportation price. As we speak now, prices have recovered to $3-$4 kind of range, to bring some kind of sanity back in the markets.

So, energy commodities are obviously not solely driven by long term logic or common sense. Another thing is that Solar or Wind or newer energy themes, would only pickup when the fossil fuel driven world actually comes to a standstill or is very near to doing so, which is atleast 30 years away from now. So investment with a fossil fuel death scenario is a very long shot, and unlikely to deliver in short run.

In short run, companies like Webel Solar would solely get priced just like any other manufacturing firm, only on the basis of fundamentals, and would not receive any premium from markets. Let’s take a quick look at Webel fundamentals and decide.

Promoter shareholding in Webel is coming down from 36.72% two quarters back to 27.62% now, which is an obvious negative. Private corporate bodies have absorbed this increase in stock, released by promoters. Firm has not paid dividend since 2009.

Firm also has significant debt on its books, which is close to Rs 300 crores and quarterly interest payment is 20% to 30% of its revenues, which is a result of very high exposure to debt. Firm is also not profitable from past five quarters, which is also a negative.

So, Webel Solar doesn’t make a good candidate for investment in short or medium term. We have seen the impact of debt on other energy firms like Suzlon and hence it makes a risky stock to invest in.

Question: Infrastructure cos. like IVRCL /HCC /GAMMON / PUNJ LLOYD are well reputed but currently neglected badly and diving down daily. Can they be bought at this level with a long time horizon say above Three years?


Infrastructure is a badly beaten up sector, as you rightly pointed out. Power and Road are two of the largest infrastructure segment in India, and recent reports point out that Bank loans towards Infrastructure projects have died down, resulting in most projects being in limbo now. Awarding of new projects is also at their five year low and many awarded projects have not even taken off, stuck in policy paralysis, high interest costs, bank unwilling to lend and other such issues.

However, there are some companies which would outlast this negative scenario. IVRCL is one of the strongest in this segment and would outlast the current policy paralysis to grow as a stronger and better player. HCC is another firm which was deeply hit due to its innovative Lavasa Hill-city project getting stuck in Environmental issues which were part politically motivated. Regime changes could positively affect this specific scrip as well, and firm plans to go for Lavasa IPO once overall situation improves.

Punj Llyod is going strong and has not reported losses in past five quarters, unlike most of other Infrastructure firms. Its top-line is also showing an improving trend which could result in better bottom-line profits in next few quarters. Markets worry only about bottom-line profits, so the firm could see a re-rating in next few quarters, if the results improve from here. Firm has also paid dividends in 2012 and has not missed dividend payout in past 7 years. So, it is one of the strongest players in this segment on a overall basis.

So, some of these stocks can be accumulated at these levels for 12-18 months of time horizon and would provide good returns once the overall situation improves for Infrastructure sector.

Question: Requesting you to please analyze my portfolio. What stocks should be hold for long term for good returns. I have tried to get balanced portfolio but then also I'm in good amount of loss. What strategy should I adopt with my current holdings?

· No. of shares Stocks @ Buy price

· 150 Aurbindo Pharma@ 187

· 100 Bhel@ 236

· 300 Jain Irrigation@ 72

· 40 Mmtc Limited@ 765

· 40 Moil Limited@ 400

· 150 Petronet Lng Ltd@ 150

· 85 Tata Motors@ 295

· 220 Tata Global Beverages@ 139

· 150 United Phosphorous@ 139

· 40 Yes Bank@ 534


A basic method to analyze a portfolio is to divide the stocks in Good, Bad and Ugly category. A Good stock is a fundamentally strong stock, which an investor can hold and add to more on the dips.

A Bad stock is having shaky fundamentals due to temporary market impact or regulatory regime, and an investor can hold this stock, but more averaging is not recommended. An Ugly stock is a bet gone wrong with a company having very poor fundamentals or firm about to go out of business, and any investment or averaging is not recommended, with stock to be exited at current price.

In your portfolio, fortunately all stocks are of good category, with good names such as Tata Motors, Yes Bank and companies like BHEL and MOIL. One can hold this portfolio with averaging recommended on dips if your account size permits that.


  1. Hi Naren ,

    I'd be thankful if you can analyze my portfolio.

    Kaveri seeds @ Avg price 1125
    Jubilant foodworks @ 750
    Rallis India @ 135
    L&TFH @ 56
    Reliance Cap @ 414
    Lovable Lingerie @ 465
    Gujrat Fluorochem @ 440
    Bajaj Corp @ 252
    Sheri ganesh jewellary @ 130
    MCX @ 1224
    PC Jewellary @ 135
    Besides these ,I have a v few quantity of muthoot cap(@124) , lupin(@610) , Balkrishna Ind(@315) , HUL(@500) , Glenmark(@500) & crompgreaves (@150)....I want to add Pidilite & tree house education also on dips. Please analyze my portfolio and provide your valuable comments , so that i can remove my loop holes. I genrally follow investing in Rupee cost averaging strategy...Kindly also provide any other stocks which u seems can provide better returns over the long term.


  2. Sir pls advice on ramky its falling like pack of cards

    pls advice whether to hold or to exit ?


  3. Pls reply soon sir on ramky its falling everyday will it become like zylog & glodyne ??

    pls tell me should i exit or stay ??



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