Redignton, Pennar on charts
02-Feb-12 Leave a Comment
Redington India is a very low margin game (PAT margins ~ 1.3%) and the company is piling on foreign debt to finance buyback of stake in one of its subsidiaries from a private equity investor. Now interest servicing costs and its core business are both long the INR. It’s anyone’s guess really, but there could be some who are predicting that the INR will rise up from here – will that be able to take up the price of this stock to 100? If look at the price chart on the right (trailing 18 months), it does look like a coiled spring – what remains to be seen is which way will it uncoil. Up or down?
Now there is a company headquartered less than a kilometer from my residence: the integrated engineering company called Pennar Industies. Is proximity to where you live a good reason to invest in a company? The stock really has just dropped and dropped but I read somewhere that a venture capital investor has picked up a 7.74% stake through secondary market purchases spread over the past 6 months. Well, they certainly managed to strike their purchases within the narrow 37 – 40 price band. This gives a valuation of ~450 crores to the company. The current market cap is ~ 414 crores so that looks like fair. The investors’ presentation on the company’s website puts the replacement value of the business at 700 crores as compared to its gross block of 345 crores. Now, on a consolidated net sales of ~ 1,200 crores, the mcap looks like well, ummm. Even with a net profit margin of ~ 6%, the mcap to sales ratio looks a bit low. Its chart (on the right) also shows what looks like a bollinger band squeeze. Is this the nadir for this stock? Good to plonk a small amount? I guess i’ll sleep over it and at least wait for the 50 SMA line to cur above the 200 SMA line. Have to check leverage and shares pledged, if any.
