Jul 26, 2013|
What's wrong with Gitanjali Gems?
The stock of Gitanjali Gems share price is under the clutches of bears right now. It has fallen by almost 85% over the last two months! At the time of writing the stock had hit lower circuit.
Institutional shareholding movement in Gitanjali Gems
Let us first understand the reasons for this massive fall in such a short span of time. Recently, SEBI barred the promoter of the company Mr Mehul Choksi and 26 other entities from trading in the market for a period of six months. It is believed that the promoter along with these entities was indulging in market manipulation of company's shares. This led to a huge correction in stock price.
RBI's step to curb gold imports also took a toll on share price. CARE's downgrade of its bank facilities sensing liquidity crunch further hammered the stock.
It may also be noted that 35% of the promoter's equity was pledged as of 30 March 2013. Fall in the stock price for the reasons mentioned above may have triggered margin calls. This further accentuated the fall as lenders may have started selling the shares lying with them as collateral. This is evident from the fact that promoter holding has fallen from 59.4% in March 2013 to 55.0% in June 2013.
Due to these reasons the stock has corrected by almost 85% in a short span of two months. Right now, it is quoting at Rs 85 odd from Rs 600 odd levels that prevailed in May 2013. Of course, a correction of such amount presents a buying opportunity provided the stock's fundamentals are intact. And institutional investors being better informed are considered to have a better gauge of the overall market perception.
Let us have a look at how the institutional holding of the stock has moved over the quarter. This will help us assess the market perception on the stock.
It can be seen that institutional shareholding across categories has increased. In fact, over the last 4 quarters the shareholding of LIC has gradually increased from almost nil to about 5% now. This means that broader market still believes in the long term story of the stock.
However, we have a contrary belief. First it may be noted that the institutional shareholding in the stock has increased over the last 2-3 quarters due to rising gold prices. Gitanjali being a play on gold prices, led most investors to jump in on the anticipation of good returns. The fundamentals of the stock are not that encouraging either. The consolidated debt to equity (D/E) ratio of the company has been above 1x over the last five years. The return ratio's (RoE) got a push in the last two years due to increasing asset turnover. Else they were mostly in lower double digits ranging from 10-13%. Promoter pledge of about 35% also increases the risk of investment.
Lastly, it should be noted that the promoter of the company has been banned for trading for an alleged manipulation in stock price. Thus, there is a question over management integrity with stock rigging instance being quite evident. While this is not a case of fudging books like Satyam it questions the ethics of management. In the past, there have been numerous cases where stocks were beaten down due to integrity issues and have not recovered. And Gitanjali Gems could be one of them. While the broader market is trying to play over the gold story we feel that investors should steer clear of Gitanjali Gems. While the fall may excite on initial instance it could be a trap which an average investor can find very difficult to come out in future.
||Jinesh Joshi (Research Analyst) holds a masters degree in Finance and has over 8 years of experience in tracking equities. He has a keen affinity for number-crunching and is often sought after for his valuable insights on financial modeling and valuations. He has a keen eye for spotting emerging growth opportunities across sectors and market caps. Jinesh contributes to our Megatrend investing service The India Letter.
More Views on News
Aug 10, 2017
However, growth at these levels are unlikely to be sustainable.
Mar 7, 2017
Equitymaster analyses Initial Public Offering (IPO) of Avenue Supermarts Limited.
Feb 14, 2017
Titan Industries declared its results for the third quarter of financial year 2017 (3QFY17). While topline growth was 14.7% YoY, net profit grew by 13.1% YoY during the quarter. Here is our analysis of the results.
Nov 16, 2016
Titan Industries declared its results for the second quarter of financial year 2017 (2QFY17). While topline growth was flat, net profit grew by 23.5% YoY during the quarter. Here is our analysis of the results.
Aug 9, 2016
Titan Industries declared its results for the first quarter of financial year 2017 (1QFY17). The company reported 3.3% YoY increase in sales, while net profit fell by 16.3% YoY during the quarter.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407