SINTEX –WHO IS REALLY BUYING?

Sintex stock is up 72% this month and what is truly amazing is that the stock has started to rally right after 30^th September, which is end of the quarter. So what exactly happened in Q2 and what has happened since?

I am just looking at the recent shareholding pattern changes. In quarter ending September 30^th, FIIs hold 3.7 crore shares or 11.82% of equity, which is remarkably lower than 7.8 crore shares or 24.8% of equity they held at the end of June quarter. And what really amazes me is that this was not bought by either mutual funds or other domestic financial institutions whose total shareholding is almost flat between quarters. And the promoter shareholding didn’t change as well – so who really bought?

The non-promoter, non-institution shareholding is up sharply to over 40% vs little over 27%. In fact individuals now own 8.3 crore shares vs 5.5 crore shares. But what is really perplexing is the category called “Bodies corporate” – Their shareholding is up to 4 crore shares vs 2.8 crore shares. That’s a jump from 8.9% to 12.9%.

Who are these corporate bodies and individuals? None of them holds over 1% stake and hence it’s not shown in the breakup of shareholding pattern, but if the grapevine is to be believed, we have seen a lot of smart/informed buying by certain blue blooded investors (Also, this at times has been disguised promoter buying but we cannot infer that in every case)

By the way, promoters also bought 25 lakh shares between October 17 and 18 and they made a proper disclosure to that effect. From those levels, the stock is up 50%!!!

Now Q2 numbers looked good for Sintex, but the balance sheet is still in a mess. In fact from the same shareholding pattern, you see Bank Of Newyork holding 10.2 cr shares as a trustee for $140 m FCCB due in 2017. Now 10.2 crore shares are worth 350 crores and $140 m FCCB amount to Rs 870 crores. So there is still a lot of risk that this company is carrying.

What to do now with the stock? Well, if you managed to get in early, there is no harm in booking say 35-40% of your holding which might cover your entire costs and make some money as well and ride the rest with a strict trailing stop loss. But if you have missed the bus, wait for the next bus – don’t try to catch this one.

Note: This article was first published on moneycontrol.com

ASIAN PAINTS - HOW EVERYONE GOT IT WRONG

ASIAN PAINTS - HOW EVERYONE GOT IT WRONG

I love how people can be in denial despite their call going horribly wrong. One of the leading brokerages downgraded Asian Paints on October 14, cutting the target from Rs 505 to Rs 405, and since the brokerage is a real blue blooded one, the stock fell from Rs 485 to Rs 470 – the analyst must have felt a million dollars, but wait, within 3 days, the stock is back to 485 and on 5^th day, the stock hits a lifetime high of 530 Rupees after spectacular number.

The brokerage also had a research tactical idea of the stock underperforming which was closed today. All they say in closing the note is this – “This Research Tactical Idea is closed because the stock price has moved contrary to our expectations. Effective immediately, the Tactical Idea published on Asian Paints (ASPN.NS) on October 14, 2013 has been discontinued and should no longer be relied upon”

Now my problem is not that an analyst call has gone wrong. My problem is the resistance the analyst community has to eat their words and admitting that they got it wrong. I have seen 5 brokerage reports this morning and none of them has a buy on the stock, It’s a consensus Sell/Underperform/Underweight.

To all these analysts – I have just a one line response– the stock is up 8% this week, 13% this month and 20% this year. Oh, and the stock is up over 100% since the start of 2012.

Now of course, the key is what to do with this stock going forward. At 30-35x on eyear forward earnings, this is one of the most expensive stocks. But then, when has that stopped a stock from moving higher? If that was the case, Jubilant Foodworks would have never had the rally it had – HUL would have topped out at 450 or 500. Why are investors willing to pay this kind of premium?

The answer lies in the factor that we sometimes ignore; the growth factor. The company has seen double digit volume growth in a seasonally weak quarter. Over the last many years, the company has grown its topline and bottomline in double digits and the stock has been one of the most consistent performers over a 20 year period. In fact if you were to just take FY16 into account, the stock would be available at around 25x earnings, still expensive but then at least you have visibility and certainty of earnings.

Bottomline, the stock may well correct 10% if the market gets into further risk on mood and we see a shift from defensives to high beta. But as of now there is no evidence to believe that the stock will change its texture of being a consistent long term outperformer