• OUTLOOK ARENA
  • SPECIAL REPORT
  • DECEMBER 31, 2008

Five stocks that fell apart in 2008

If free fall in stock prices was the name of the game in 2008, the following companies can be crowned as champions. These are the stocks (from under our research coverage) that have lost the most in this year from amongst its peers in the BSE-A Group.

While the overall sentiments for these sectors have deteriorated steadily over the past year, the reasons why these companies stand out in the list of losers are more subjective in nature. These vary from forex fluctuations, to highly leveraged acquisitions, to poor outlook for investments in global markets, and to regulatory issues.

It should be noted that these are the stocks (from under our research coverage) that have lost the most in this year from amongst its peers in the BSE-A Group.

Suzlon: Rs 100 invested is now worth...
Source: Equitymaster
Suzlon (Returns in – 2007: 49%, 2008: -84%)
Suzlon’s stock was amongst the biggest losers in 2008. After touching a high of Rs 460, the stock fell to a low of about Rs 36 recently, and will end the year at a level of about Rs 60. The reasons of such volatility have been numerous. Chief among them is the company’s aggressive inorganic growth forays, for which it resorted to foreign borrowings, thereby ending with a leveraged balance sheet. Marked to market losses on these borrowings due to sharp depreciation of the rupee against the US dollar has severely dented its profitability during the July-September quarter. Suzlon also had to contend with quality issues as numerous blades of its wind turbines developed cracks. This raised concerns about the quality of its products and dealt a blow to its reputation. Another big negative was the continued pressure its profitability, which has indeed been declining year after year.

Tech Mahindra: Rs 100 invested is now worth...
Source: Equitymaster
Tech Mahindra (Returns in – 2007: -32%, 2008: -78%)
Tech Mahindra was another company that was caught off-guard by the economic slowdown that also impacted its peers. The stock lost almost 78% on the bourses, and was amongst the biggest losers from the software pack. The company bore the brunt of economic slowdown in the US and Europe, as it is heavily dependent on business from these two regions. The company also got badly hit by unfavourable currency movement. It also faced some pressure from its single largest customer, British Telecommunications (BT). The BT account of Tech Mahindra comprises of two divisions namely BT and BT Global Services (BTGS). The company has started witnessing slowdown in revenue from the BTGS deal as it seems to have peaked out. Furthermore, BT is mulling over cost cutting which gives poor revenue visibility going forward. As a consequence, the company has almost frozen new recruitments and is awaiting better times in 2009.

Tata Motors: Rs 100 invested is now worth...
Source: Equitymaster
Tata Motors (Returns in – 2007: -20%, 2008: -79%)
What a difference a year can make. The company that by December 2007 had seen its market value jump more than six times from the lows of 2003 is now back to square one. In other words, the huge 79% fall in the company’s market cap in 2008 has virtually wiped off all the gains of the past few years. While a part of the fall could be attributed to deteriorating macroeconomic environment, some of the blame is also of the company’s own making. Just as it was in the midst of a huge capex plan, it bought out luxury auto brands Jaguar and Land Rover and in the process, stretched its balance sheet a tad too much. Unfortunately, the company’s spending binge coincided with one of the worst slowdowns in recent years, which is now threatening to create huge cash flow problems. Its rights issue too met with a tepid response. In an already risk averse environment, investors would simply not touch something with that much financial risk. While the deteriorating in near term fundamentals did warrant a correction, has it been overdone? Quite likely.

Bharat Forge: Rs 100 invested is now worth...
Source: Equitymaster
Bharat Forge (Returns in – 2007: -3%, 2008: -78%)
This is another company from the auto (ancillary) industry whose stock was knocked off nearly 80% in 2008. And the reasons were not very different either. Although the company’s standalone balance sheet is not as stretched as Tata Motors’, the financial leverage is still close to threatening levels. Furthermore, its exposure to the auto markets of the developed world, where the collapse in sales has been unprecedented added to the investor anxiety. As far as the future goes, it is heading in the right direction by reducing its dependence on the auto industry and further de-risking its business model. Thus, it may not see another year with a similar plunge in fortunes hopefully for quite some time.

Voltas: Rs 100 invested is now worth...
Source: Equitymaster
Voltas (Returns in – 2007: 114%, 2008: -77%)
After the strong performances recorded over the past 3-4 years especially owing to rising infrastructure spending in the Gulf region, Voltas was amongst the fastest growing companies in 2007. The situation however reversed in the latter half of 2008. With oil prices crashing from the all time highs, questions are now being raised on the investment capabilities of Gulf countries, since these are largely dependent on oil money. While Voltas has indicated that the current projects it is working on are fully funded, the question arises on the company’s growth potential if its international business dries down. Even in the domestic market, the company has indicated of slowdown in inflow of new air-conditioning projects, especially from the realty sector. The first of FY09 has not really painted a good picture. While sales and profits have grown at robust rates, operating margins have come under pressure.

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 (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407