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BW Businessworld

Up, Up And Away

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A Bombay Stock Exchange (BSE) Investor Protection Fund-initiated analyst report on Globus Constructors & Developers (now rechristened Globus Power Generation) has a word of caution for investors: “Investors should note that the share price of the company often fluctuates wildly and, in spite of no growth in operations, the stock has risen from Rs 5 to Rs 35 between August 2010 and March 2013.”

The analysts’ concerns are valid. Globus Constructors has had frequent changes in its core business. The company, till 2008, was in the business of manufacturing carpets and woollen garments. Subsequently, it entered construction and the real estate development sector, and changed its name to Globus Constructors & Developers. In 2012, the company rejigged its ‘objects’ clause — this time to foray into the clean energy-generation business. The company also proposed another name change, to Globus Power Generation.

That’s not all. Globus Constructors’ shares have surged over 20 times (2,000 per cent) between 1 April 2013 and 31 March 2014. This, in a way, has helped the promoters of the company (whose names are not in the public domain) increase their wealth from Rs 2 crore to Rs 1,216 crore in a year’s time.

While the company has done remarkably well on the bourses, it has a mediocre earnings record. Globus Constructors posted a loss of Rs 1.9 crore on a turnover of Rs 36 lakh in the quarter ending 31 March of the last fiscal. Despite repeated attempts, BW | Businessworld could not get in touch with the promoters to understand their business.

Similar is the case of Trinity Tradelink (previously Omnitech Petroleum).  The company was incorporated in 1985 with an objective to carry out general trading and financial activities. In 2010, it witnessed a change in management, with the present promoters — Vikrant Kayan and Sukumar Das — assuming control of the business. Soon after, the company altered its business objective to oil, gas and petroleum-related activities. Along with the profile, the name of the company also changed from Sharp Trading & Finance to Omnitech Petroleum and, the current, Trinity Tradelink.

Trinity Tradelink is yet to file its March 2014 earnings report. It has suffered losses in quarters preceding December 2013. Lower profitability has, however, not impacted the company’s stock market performance; shares of Trinity Tradelink zoomed 140 per cent to Rs 99 last fiscal. This triggered a subsequent rise in promoter wealth — from Rs 6 crore to Rs 895 crore in 2014. Company promoter Vikrant Kayan could not be reached for a comment.

Poor disclosure and inability on the part of promoters to explain their business model make some of these companies somewhat difficult for analysts and investors to understand. That said, there are companies such as Matra Kaushal Enterprise which has plausible reasons to explain the rise in promoter wealth.

Secunderabad-based Matra Kaushal, promoted by Ramesh Chandra Partani, reported profits of Rs 79 lakh on a turnover of Rs 7.18 crore. Its share appreciated from Rs 11 to Rs 550 in the last financial year — causing a corresponding impact on the wealth of Partani, which rose from Rs 1 crore in 2013 to Rs 280 crore in 2014.  “Our company underwent an amalgamation (with a larger company) last fiscal that increased our capital base from Rs 3 crore to Rs 22 crore. We are well capitalised now. Our sales and earnings numbers look even better this year. We have plans to expand our markets; we will also diversify our product range over the next two years,” says Partani.

Partani is bullish about his business, but equity analysts are not. They are skeptical about Matra Kaushal’s long history of consistent losses. “There is no way this company can justify a market cap of Rs 1,100 crore,” they say.

Companies like Globus Constructors, Trinity Tradelink, HPC Bio-Sciences and Esteem Bio-Organics have witnessed significant rise in promoter wealth — mainly because of unexplained stock market outperformance. Should investors take a cue from gains made by these promoters and invest in these companies? The answer is NO.

“Companies should be researched well before investing. Rise in stock price cannot be linked to fundamentals of a company. Unexplained spurt is also not very healthy,” says Ambareesh Baliga of Edelweiss Financial Services. 

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(This story was published in BW | Businessworld Issue Dated 14-07-2014)