Market Watch: Festivities to continue but tighten your belt

Notwithstanding the discrepancies in the numbers, I believe the company is in a good business.
equity sensex nifty

New Delhi, Dec 20 : The week saw the benchmark indices continue its upward march and markets register new lifetime highs. SESENSEX gained 861.68 points or 1.87 per cent to close at 46,960.69 points while NIFTY gained 246.70 points or 1.83 per cent to close at 13,760.55 points. The broader market saw BSE100, BSE200 and BSE500 gain 1.79 per cent, 1.69 per cent and 1.65 per cent respectively. BSEMIDCAP gained 1.60 per cent and BSESMALLCAP gained 1.23 per cent. The market gained on all five days of the week but volatility continues to remain high. There were days when markets opened weak on global cues but eventually closed higher indicating the bull grip and continued FII flows. It can be safely said that with average flows of over Rs 2,000 crs every day, this has been the best FII flow in many years with total investment crossing the 20 billion US dollar mark in 2020.

The Indian Rupee gained 9 paisa or 0.12 per cent to close at Rs 73.56 to the US Dollar. Dow Jones gained 132.68 points or 0.44 per cent to close at 30,179.06 points.

We have eight trading sessions remaining in the current calendar year before 2020 draws to the close. FII’s have not yet taken their customary holiday. Bulls are in no mood to blink and markets refuse to take a breather. What should investors do? First of all, they must take money off the table. Even if you are reluctant to do that, stop fresh investments currently and move up the ladder in terms of quality within your existing portfolio. Sell what you think looks fundamentally the weakest and buy the resultant sale amount equivalent with the best stocks in your portfolio of similar amount. There would be NAV propping on the last couple of days of the year which could give you an opportunity to exit from the market.

In primary market news there was plenty of action with one listing, one IPO opening and closing for subscription and one IPO being launched. Shares of Burger King India Limited, listed on the bourses and had a great show hitting the upper circuit at 20 per cent. Shares were issued at Rs 60 and closed on day one (Monday, December 14) at Rs 138.40. Tuesday, Wednesday and Thursday saw the shares hit upper circuits of 20 per cent, 20 per cent and 10 per cent each. Thursday also saw the share close at lower circuit after hitting the upper circuit. Friday was again lower circuit. This was probably the first time ever that you saw a share with a reasonably large size of issue (Rs 810 crs) hit six consecutive circuits in five days. Four upper circuits and two lower circuits. Shares closed Friday at Rs 138.40 on BSE, a gain of Rs 78.40 or 130.66 per cent. Going forward, with the circuit filter to be reduced to 5 per cent it is quite likely that the circuit saga would continue and there could be a distinct possibility that you would have days when both the upper and lower circuits are hit on the same day. The share needs to stabilise.

The primary issue from Mrs Bectors Food Specialities Limited was subscribed just short of 200 times at 199.41 times. QIB portion was subscribed 178.08 times, HNI portion was subscribed 625.20 times and Retail portion was subscribed 29.53 times. There were 25.82 lac applications received in the issue. It is indeed a strange coincidence that Burger King is a customer of Mr Bectors as they are supplied buns for their burgers by this company as is McDonalds. The subscription has been aided by the superb listing of Burger King. The cost of funding for the leveraged HNI is about Rs 215-225. The issue price band was Rs 286-288.

The issue from Antony Waste Handling Cell Limited opens on Monday the 21st of December and closes on Wednesday the 23rd of December. The issue is for a fresh issue of Rs 85 crs and an offer for sale of 68,24,933 equity shares in a price band of Rs 313-315. The total issue is for about Rs 300 crs. This company had tapped the markets earlier during the year in February-March 2020 and had failed to raise the amount of of Rs 206 crs even after extending the issue. This would be their second attempt. The company is in the business of solid waste management and also offers street sweeping services and garbage collection and disposal. The company reported revenues of Rs 464 crs for the year ended March 2020. The EPS for the year ended March 2020 on a fully diluted, restated consolidated net profit of Rs 42.28 crs is Rs 16.52. Based on this EPS, the PE ratio is 18.94-19.06 times. The company has earned in the six-month period an EPS of Rs 7.68. The second half is typically better simply because the winter months lead to a little more of garbage and in this year, there would be a bigger difference on account of Covid-19. Commercial establishments were closed in the first half and are now re-opening.

There is some issue with the reporting of NAV by the company for the year ended March 2020 which seems to be done erroneously. They have reported a NAV of Rs 136.81 for 31st March 2020 while it should conventionally be based on outstanding number of shares as on March 31 and should be Rs 82.25. While there is a corrigendum issued about the NAV, it is not to correct the number but to change the formula for calculating the NAV. The corrigendum states that the denominator should read as “weighted average number of equity shares outstanding during the year”. Readers would recall that the NAV is an important event and many a times we have read that markets would rise because of year end/ quarter end NAV propping. If this was based on the weighted average number of shares it would be infructuous and irrelevant. Wonder why mutual funds, exchange traded funds would have relevance to NAV at all. It’s time the company’s statutory auditors, Grant and Thornton and their merchant bankers along with the issuing company have a relook at the rule book and provide correct information. It is insulting to investors when they are taken for a ride this way.

There is another point where they have painted a wrong picture of the outstanding equity of the company for purposes of determining equity share capital. We have a curious case where the equity as on 31st March 2019 is higher than the equity of 31st March 2020. This is despite the fact that there has been conversion of equity of 1.1 cr shares in FY 2020. This is on a base of 1.30 cr shares. This has all been done to give a wrong impression of the EPS which the company advertisement states to be as Rs 27.48 while I have mentioned it as Rs 16.52. For the investor who wants to go into details it is advised to look at page 275 of the red herring document of the company.

Notwithstanding the discrepancies in the numbers, I believe the company is in a good business.

Coming to the markets we have an interesting four days ahead of us with Friday being a holiday for Christmas. Book profits, take money of the table, improve the quality of your portfolio by selling the weakest fundamental stocks and if you need to reinvest buy from the top of your holding. Enjoy upcoming festive season and finally, “MERRY CHRISTMAS”

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

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