‘Circular trading’ is back to the fore

V S Fernando

The trading volume exhibited by the scrip of television software major Balaji Telefilms Ltd (BTL) on both The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) this week clearly indicates that manipulators are once again gaining control. Or else, how would one explain BTL’s case where more than five-times the entire floating stock of the company was traded in a single day? Believe it or not, the total trades recorded by the BTL scrip on a single day outnumbers 20 times its shareholder base!

On Thursday, for the first time since its listing in November, the BTL scrip attracted a collective volume of more its issued capital.
Whereas 75,82,967 shares changed hands in 53,663 trades on BSE, as many as 92,94,636 shares were traded on NSE in 72538 trades same day. Thus, on a single day, as much as 1,68,77,603 (1.69 crore) BTL shares changed hands in 1,26,201 (1.26 lakh) trades. Can this happen under normal circumstances?

The company itself has not issued more than 1.03 crore shares (equity capital being Rs 10.30 crore) of which, the promoters (film actor Jeetendra’s family members) claim to hold 69.95 lakh shares (68 per cent). Panthar Fincap, linked to the now disgraced “Big Bull”, holds 4.57 lakh shares (4.4 per cent). Prudential ICICI is also said to be holding about 5 per cent of the equity. Some time back, SBI Mutual too had reportedly acquired another 5 per cent. This leaves less than 23 lakh shares which is held by around 6000 investors.

When the floating stock is said to be less than 30 lakh shares, how come the market is recording an aggregate volume of more than 168 lakh shares? Even if the promoters off load their shares along with Panthar Fincap, Prudential ICICI and SBI Mutual, the total number of shares flooding the market should not be more than 82.4 lakh shares, as 20 per cent of the equity held by the promoters is locked-in. Also, when the company has less than 6000 share holders, how come the scrip has registered as many as 1.26 lakh trades in a single day?

Interestingly, while the BTL scrip records unprecedented volume of trading both on the BSE and NSE, the scrip’s price movement hardly reflects any impact of the voluminous trading. On July 23, about 9000 shares changed hands on BSE in 142 trades. Same day NSE recorded around 90,000 shares in 1070 trades. The share price on both the exchanges was same at Rs 168 on that day. On August 3, while BSE witnessed a volume of 15.46 lakh shares in 8258 trades, NSE registered a volume of 28.90 lakh shares in 14262 trades and the price on both the exchanges was at around Rs 220.

Between July 24 and August 3 the scrip witnessed a total volume of around 2 crore shares on BSE and 2.08 crore shares on NSE which saw the price climbing up by 31 per cent. Nevertheless, post-August 3, the scrip has recorded a volume of 1.75 crore shares on BSE and over 2 crore shares on NSE in just 4 days, till August 9. Yet, the price has dropped down to Rs 212! If genuine buying had taken place, how come the price has fallen 4 per cent despite a record volume of trading?

It may be recalled that BTL had floated its IPO in October 2000 through the ‘Book Building’ route and fixed the price at Rs 130. Fluctuating between Rs 151 and 199 on the day of listing (November 22) on both BSE and NSE, the scrip scaled a peak of Rs 353 early this year. Post-scam burst, when the big bull was caught by its horns, the scrip’s price crashed to Rs 87 in April this year.

On the financial performance front, BTL has done reasonably well post-issue. For fiscal 2001, BTL posted a bottom line of Rs 4.35 crore on a gross revenue of Rs 49.67 crore.

During the first quarter of current fiscal, the company has posted a profit of Rs 4.94 crore. This yields an annualised EPS of around Rs 19 which is discounted only about 11 times by the current market price (Rs 211.90 on August 9). Perhaps, the poor discounting could be attributed to the unpredictability of the company’s profitability.

In fiscal 2001, the company’s revenue more than doubled (from Rs 20.15 crore to Rs 49.67 crore). But, its net profit increased only by Rs 6 lakh (from 4.29 crore to 4.35 crore).

It is also worth noting that post-IPO, BTL’s management had pro posed to takeover Nine Network Entertainment India Pvt Ltd (NNEI) — a 100 per cent subsidiary of a joint venture between Himachal Futuristic of Maloos and Channel Nine of Kerry Packer, Australia. But, now, the merger has fallen through, which has in a way kept the disgraced big bull who played the advisory role for the merger away from BTL.

But the big bull’s association through Panthar Fincap is likely to haunt the BTL scrip whenever he is in trouble. In this light, the present abnormal volume in this counter is worth investigating.

(Arranged by Investar - The Aarthik News & Research Group)
fernando@bol.net.in (or) feedback@investaronline.com