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Sunday, December 9, 2012

REI Agro: The demons it continues to fight!

A valued reader asks this question about REI Agro:

Question: I invested in REI Agro at around 9 Rs in July.. But its moving very very slow...
It does not participate in matter how much market goes up it sticks to 50 paise up down...

Promoter is constantly buying and delivery is always every day "70%" and around for this stock ... but still it trades in plus minus 1 rupee range daily not moving up at all...

What do you think would be the time frame for this stock to move to 20 levels ?? it is getting frustrating day by day... and i fear if market falls due to FIIs booking profit it would again go down below 10 levels...

I read your posts on REI but requesting you to Please share your views again on Rei ..if positive , it may instill some confidence & faith in me to hold for more time..

Answer: Thanks for your question. We reviewed REI Agro in April here. Pls see the latest updated EoD chart for REI below:

REI Agro remains in a consolidation state from past 6 months after heavy fall during most of 2011 and first 6 months of 2012. It takes about 3-6 months for a stock to consolidate after heavy price shedding!

During this consolidation phase, stock transfers hands from weak hands to stronger ones with inside information. As you rightly said, promoters are constantly buying and quarterly holding from promoters is scaling up. Whom are they buying from? FIIs are selling sporadically. Although their sale is not as rampant as in some other stocks.

Technically speaking, the scrip is ripe for a up-move now. You would notice that most stocks would move only when you are about to lose faith in them! Market is a acute judge of retail sentiments!

Pls look at chart above. 12.5 is a strong resistance for REI, from where it has suffered rejection at least three times in past 6 months, denoted by circles. The last candle on this chart, i.e., this Friday has been a Doji, denoting uncertainty again.

Right now is a crucial stage with 50 SMA trying to crossover 200 SMA and thus signalling end of bear market for this scrip. This can fail as well as this is crucial junction. But most probably, it should crossover.

Volumes have been steady or falling in consolidation phase and most probably you would see REI breaking this overhead resistance with heavy volumes and quickly reaching the next stage which is resistance around 19.

Now fundamentally, if you see the quarterly results, things are improving, but for Interest costs, which are about 10% of the revenues. Debt is constant at about 5000 crores or so, and as i mentioned in last post:

Company is carrying high amount of debt, which is probably because rice processing is a high working capital intensive business. The business requires upto 14 months of inventory of Basmati paddy, which requires significant tied up investments in working capital.

in 2013, with interest rates moving down, the profitability would improve significantly as 10% of their revenues are blocked to service this working capital need. So scrip can see good movement to 25 or so.

However, until it breaks the 12.5 level, pls brace for more consolidation in this 9-12.5 range. The downside risk is limited to 9, and you have a good purchase price that you have entered, so i suggest reduce your holdings to your comfort level, book some profits and hold the rest.

Hope this helps. Thanks for reading this and keep writing in to us. 


  1. Thanks Naren Bhai , your research is always delight to read.

    This post has rejuvenated my confidence in this stock , will continue holding REI now.

    I wouldnt have been so impatient in other stocks but since REI's price is so low (like penny) it gives sleepless nights , because a fall in penny priced stocks can reduce the capital invested by a great the fear...

    I will breathe a sigh of relief once it goes past 12.5...lookin forward to that moment..

    Thank you very much again..

    Thanks for clearing my other doubt on trading also.


  2. wow! have anyone seen the current price of this stock?


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