1. Five stocks which destroyed value while Sensex made hay

Five stocks which destroyed value while Sensex made hay

Indian stock markets are on a roll, but not everyone is as cheerful. While the benchmark indices are making new all-time highs again and again of late, there are certain stocks which are near their historic lows, or worse, in some cases, are not trading at all with no sign of recovery.

By: | Updated: May 2, 2017 12:52 PM
The shares of the celebrated air carrier Kingfisher Airlines top the list, practically erasing all its value as the trading in the once-hot stock is suspended for more than two years now.

Indian stock markets are on a roll, but not everyone is as cheerful. While the benchmark indices are making new all-time highs again and again of late, there are certain stocks which are near their historic lows, or worse, in some cases, are not trading at all with no sign of recovery.

These stocks, despite being the darlings of the markets, media or the public in general, sank due to various factors, ranging from flawed business models to economic downturn to legal issues to market forces, and did not recover ever since to their hay day levels.

Kingfisher Airlines

The shares of the celebrated air carrier Kingfisher Airlines top the list, practically erasing all its value as the trading in the once-hot stock is suspended for more than two years now. The fashionable airline, promoted by former liquor baron Vijay Mallya got grounded as it ran out of money to run its day-to-day operations after splurging on lavish parties, grand events, and glamorous photo shoots.

The real chaos emerged during early 2012 when the company stopped paying salaries to its employees. It failed to pay the oil companies its dues for buying jet fuel and did not service its debt, repeatedly missing loan repayment installments.

Kingfisher Airlines shares, which had opened at Rs 129.9 in June 2006 and made a record high of Rs 334 in December 2007, tumbled to as low as Rs 1.34 on 1 December 2014, before being suspended for failing to comply with the exchange norms and not reporting the quarterly financial results for first two consecutive quarters in the financial year 2014-2015.

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The airline’s promoter Vijay Mallya, the former flamboyant businessman who went from being the “King of good times” to be labelled as a “wilful defaulter”, and then to an “absconder”, fled to London in March 2016. Wanted in cases of financial irregularities and loan defaults worth Rs 9,000 crore, Mallya was arrested in London on an extradition request by India earlier this month and now awaits trial.

Reliance Communications

Reliance Communications, the now-Anil Ambani-promoted company, which can be credited with bringing the mobile telephony to masses in India, is now a languishing player in desperate need for revival options. As the telecom sector grew, the company’s low-cost service offering dragged on its performance, and later the firm could not sustain the momentum in the growth of high-quality subscriber additions while the other operators gained the share of the market as well as the usage.

This hurt its operational and financial performance, leading to stagnation in its wireless and data revenues, while costs kept rising. Further, the weak performance of its global network operations unit and mounting debt and associated interest costs continued to weigh.

Reliance Communications’ revenue became steady, and then fell from over Rs 27,000 crore in FY 2008-09 to over Rs 22,100 crore in FY 2015-16, while its net profit has shrunk from Rs 6,250 crore to Rs 703 crore during the same period. At Friday’s closing price of Rs 34.9, Reliance Communications’ share has shed 96% of its value from the all-time of Rs 844.7 in January 2008 and is far below its 2006 opening price of Rs 307.

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Going ahead, the pressure on all telecom stocks is likely to continue due to intense competitive intensity from the rival behemoth Jio Infocomm, which, incidentally is controlled by Anil Ambani’s elder brother Mukesh Ambani. However, amid the ongoing consolidation in the telecom sector, Reliance Communications’ impending acquisitions and mergers with smaller rivals Aircel and MTS may ease the conditions in further long term and give it enough strength to be a serious contender.

Jaiprakash Associates

The reasonably diversified conglomerate with interests in engineering & construction, power, hospitality, roads & highways, IT, sports, etc was brought down by its real estate business following the burst of the housing bubble in 2008 and was further weakened due to considerable pressure on its cement business as well.

The pause in the sale of its housing properties led to the company getting stuck in a vicious cycle of revenue loss, lack of funds, projects stuck midway, and failed debt repayments leading to further shortage of financing.

JP Associates’ shares made an all-time high of Rs 340 in January 2008 (it split one-to-five in December 2017) but tanked later in the same year, as the housing bubble hit all the companies with exposure to real estate. Since then, JP Associates shares have fallen perpetually, losing 96% of the value from its all-time high price. It ended at Rs 13.55 on Friday.

Suzlon

Wind turbine maker Suzlon, which emerged as a torch bearer of innovation among the Indian industry, managed to enjoy the good publicity only for a brief period, as its rapid international expansion during the global boom dragged on it post the global economic crisis, from which it hasn’t been able to recover fully.

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Its two international acquisitions, Belgian gearbox maker Hansen Transmissions in 2006 and REPower in 2007, led to the company piling on huge amounts of debt, which it could not repay in the wake of falling wind turbine prices globally. The company’s own misfortune, in that it had to take a major financial hit to replace faulty blades in one of the orders in the US, also compounded the problems.

Suzlon has ever since tried to pare assets and refinance or restructure its debt to come out of the woods but has not been very successful. Its shares have lost 96% in value from an all-time high of Rs 460 in January 2008 to Friday’s closing price of Rs 20.65.

However, the company now hopes to exit the corporate debt restructuring exercise in the first half of the current financial year, which if happens, may give an impetus to its stock price.

Unitech

The share price of Unitech, one of India’s top-rated real estate developers, shows a steady movement historically, barring a sharp surge between 2006 and 2008, followed by a sharper fall to near its earlier levels by 2012. The spurt in Unitech shares was seen during the period of economic boom. But like several other developers, a rapid expansion funded by bank loans and high leverage led to the company getting crushed under heavy debt burden post the burst of the economic bubble, with slowing sales, delays in projects, incomplete construction and failed loan repayments.

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Not only this, the company’s Managing Director Sanjay Chandra also went to the jail in a 2G telecom scam, further denting the credibility of the company and stoking fears among the lenders. At Friday’s close of Rs 5.65, its shares are at just 1% of the all-time high price of Rs 546.8 in January 2008.

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