• APRIL 2, 2009

Sensex: Worst performers of FY09

FY09 was probably one of the most horrendous financial years in the annals of history. The financial year saw a sharp decline in the prices of stocks on the bourses. The BSE-Sensex fell by 38% during the same period and the pack of losers in the BSE-A Group was led by DLF, Tata Motors, Tata Steel, Reliance Communications and Hindalco.

Amidst the financial crisis and economic slowdown across the globe the overall sentiments for these sectors turned negative during the year. The reasons for this sharp decline varied from forex fluctuations, to highly leveraged acquisitions, to poor outlook for investments in global markets, and to regulatory issues. In the last article, we had taken a look at the top five performers during FY09. In this article, we have profiled the top five worst performers and tried to rationalize the reason for their underperformance.

Source: Equitymaster

DLF (-73%)
DLF's stock was amongst the biggest losers in FY09 falling by 73%. There were numerous reasons for this massive decline. Amidst the overall slowdown, lower demand for real estate, tight liquidity and few financiers took its toll. Prices of residential properties dropped 15-20% in India's top cities during the fiscal. This got translated into numbers which were evident during 3QFY09. While the revenues of the company dropped by 39% YoY during 3QFY09, its net profits declined by 69% YoY during the quarter. The debt burden also played its part in denting the overall performance. It may be noted that DLF has a net debt of around Rs 130 bn and the company is finding it difficult to repay its debt. The company replaced some of its short-term debt with long-term debt and is further planning to restructure the rest of its debt.

Tata Motors (-70.2%)
Tata Motors was another company that bore the brunt of the economic slowdown. The stock lost almost 70% on the bourses, and was amongst the biggest losers. The company got badly hit by restricted availability of finance and lower demand. Amidst economic slowdown, inventory pile up increased the interest expenses of the company which hit the bottomline badly. Further, a leveraged balance sheet also remained a cause for concern for investors. Recently, it bought out luxury auto brands Jaguar and Land Rover and in the process, stretched its balance sheet a tad too much. Furthermore, the company reported poor numbers in 9mFY09. While the standalone topline registered a decline of 6% YoY during this period on the back of a significant drop in volumes, bottomline dipped by 73% Yoy owing to decline in topline and higher interest expenses as well as extraordinary expenses.

Tata Steel (-69.1%)
Another laggard of the pack was steel major Tata Steel whose stock plunged 69% during the fiscal. This was mainly on account of the economic slowdown, falling steel prices and lower demand for steel. Furthermore, the biggest challenge for Tata Steel were its international operations in Europe and South East Asia, which have a significant bearing on the company's consolidated financials. The UK-based subsidiary Corus saw a continuous fall in its EBDITA per tonne from US$ 117 in 1QFY09 to US$ 83 in 3QFY09 largely on account of higher input cost and falling realisations. This took its toll on the company's consolidated margins. It may be noted that during the first nine months of FY09, the EBDITA margins for the consolidated entity stood at 15% , which were much lesser than 43% margins enjoyed by Tata Steel's domestic (standalone) operations. Also, its high debt of US$13 bn to US$ 14 bn remained a cause for concern for investors in light of very poor visibility of its future cash flows, further worsened by falling steel demand and prices.

Reliance Communications (-66.5%)
This was another company in the pack of losers whose stock was knocked off nearly 67% in the fiscal. Though Reliance Communications (RCom) was able to grow its revenues by 25% YoY and net profits by 14% YoY during 9mFY09, the company's stock was not able to show stellar performance on the bourses. The fact that RCom continues to see pressure on its wireless business growth affected the stock of the company. While wireless net additions have remained robust, there are increased chances that the company's profitability could be impacted due to a fall in ARPUs. Furthermore, the company is targeting a ‘deal seeker segment' which is not loyal to any brand and moves towards any company that offers an attractive proposition. This aggressive pricing mechanism is likely to be an unprofitable venture given that subscribers are likely to reduce their usage once the free trial period is over.

Hindalco (-65.9%)
Hindalco was another company that was caught off-guard during the fiscal and its stock lost 66%. This could be attributed to the slowdown in the overall industry and adverse LME prices. However, the company's topline and bottomline grew by 2% and 9.7% respectively during 9mFY09 mainly on account of tremendous improvement in margins of its copper business and the favorable rupee impact. Furthermore, high levels of debt in funding the Novelis acquisition and other expansion plans also played its role. A weak treatment and refining charges (Tc/Rc) market for copper compounded its woes further.

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