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The mystery of Revathi Equipment

One of legendary trader Paul Tudor Jone’s sayings was “I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.”

In the Indian context, noone (including the regulatory authorities) can explain why something is going up or something is going down.

Revathi Equiment was trading at 256 Rs/share on 4th Dec.One week later , today it closed at 360 Rs/share…a whopping gain of 40% in a week !!

Why did it go up?Nobody knows…neither the promoters,nor the exchanges nor SEBI.

Here’s what the company announcement on NSE’s website says:

Price movement : Significant price movement has been observed in Revathi Equipment Limited. The Exchange, in order to ensure that investors have latest relevant information about the company and to inform the market place so that the interest of the investors is safeguarded, had written to the company. Revathi Equipment Limited has vide its letter inter-alia stated, “Now we have no information on operation/performance of our company to be announced under clause 36 or any information which has bearing on the price or volume behavior of our equity shares in the market.”


This price action will be now consigned to the NSE’s bin of “We asked.We got a reply.Now the matter is closed”
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The soaring Jet Airways

Jet airways has shot up from Rs.400 on 19th Nov, 2012 to Rs.542 on 27th Nov, 2012…a whopping gain of 35% in just one week.

The price movement has been attributed to talks being held between Jet Airways and Eithad Airlines for the latter to pick up a stake/enter a partnership with Jet.

We have seen this happen time and again with various deals …the latest instance being the United Spirits deal.

Now, in any country, such rampant rigging up of stock would invite regulatory scrutiny.But in India, such sharp price spikes are par for the course.Our regulator SEBI is fast asleep and has no inclination of ever waking up.

Methinks SAC’s Cohen should open an office here !

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Hero MotoCorp Q2 profits fall 27%

Yesterday, I had blogged that we have seen “peak” Hero Moto Corp.

Right on cue, today Hero Moto Corp announced its Q2 results.The results are quite disastorous with net sales slumping by 11% and net profit falling by 27%.

In the press release, this is what  Mr. Pawan Munjal Managing Director & Chief Exeoutive Officer, Hero MotoCorp Ltd. had to say :

” The two-wheeler market in the country has been adversely impacted due to the overall market slowdown and prevailing sentiments since the beginning of this quarter, Sensing the slowdown in the market, we led the way in adjusting our production plans in August and
September, and this has been reflected in our quarterly sales figures. The onset of the festive season has been encouraging, with the retail sales of over two lakhs in the Navratras.
We, at Hero MotoCorp will continue to bring new launches even as we expand our distribution reach to over 5400 outlets during this fiscal. Our global business plan will also take shape this fiscal, with the launch of Hero products in new international markets such as Nigeria, Kenya and Guatemala, having already launched in existing markets such as SriLanka and Nepal in September”

 

Er, Mr.Munjal what about the bull’s eye painted on your back by Honda and Bajaj?

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“Peak” Hero Moto Corp

There was this great article in Forbes about whether Google has hit its peak revenues.The author writes

I’m normally extremely sceptical of arguments about “Peak” stuff. Peak copper, peak oil, peak water, I can usually be relied upon to pooh pooh or rubbish those stories about natural resources running out. However, with corporates and with technological offerings I’m entirely ready to accept such peak arguments. For any company is only ever exploiting a technological niche provided by the current technological environment. And those disappear just as quickly as they arise. So I’m convinced that we will indeed reach peak Google.

 

Now that leads me to think if there are any Indian companies out there who have hit peak revenues.Lots of companies in the past have been done in by technological changes – Tata Yellow Pages, Moser Baer etc

The interesting question is which company right now is having peak or close to peak revenues and will get done in by technological/regulatory changes.

I feel Hero Moto Corp fits the bill. The separation from Honda has ruptured this companies’ DNA. It is struggling to sell its dated models.In Sept 2012, it sold 4.04 L units of two wheelers as compared to 5.49 last year (a fall of 27%).Bajaj in contrast witnessed a decline of only 12%.

Hero is cash rich and is investing aggressively in R&D to fill the technology gaps in its product line.But the auto business is such that you need a dynamic promoter at the helm who is passionate about the product.Think Ratan Tata,Rajiv Bajaj, Anand Mahindra etc.All of them are involved in the design of every new product.

Fierce competition, technological irrelevance and mediocre management all point to “peak” Hero Moto Corp

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When time is your friend

One of the best quotes of Warren Buffett is “Time is the friend of a great business and an enemy of the mediocre one.”

The recent hike in diesel appears to be a part of a mega trend of ever increasing fuel prices.In Nov 2004, the diesel price in Delhi was around Rs.26.Now it is around 47 Rs.In other cities, it is even more.So we have an increase of 80% in this v controlled commodity.

Even at these prices, the oil companies are bleeding and are asking for further increases.Also, the unlimited QE promised by the FED will ensure global crude oil prices remain buoyant.

All these factors point to a future with increasing diesel prices.Now the immediate impact this mega trend is felt on the transportation sector.Freight rates have shot up soon after the announcement of the hike. All India Motor Transport Congress (AIMTC) effected a 15 % increase in the freight charges across the country. AIMTC claims to have around 80 lakh trucks under its fold.

The only real competition to the road haulage comes from the Railways.As per the Parikh report (section 4.9), railways consume 1/4th the diesel per net tonne kilometre as trucks.This implies a huge competitive advantage for the Railways and one of the reasons why Warren Buffett bought a railroad Burlington Northern.

In India, the beneficiary of this mega trend could be Concor (discussed earlier). Its a pity we have the likes of Mukul Roy heading the Railway ministry.But with time as your friend , the future appears promising for Concor.