Share Market Tips For March 2018

Housing Development and Infrastructure Ltd (NSE: HDIL) (Share Price: Rs.40): Avoid

Valuation: Undervalued stock with trailing PE of 11.12x.
Reasons to avoid: Company has delivered poor growth of -18.47% over the past five years. Company has a low interest coverage ratio as well as low return of equity since the last three years. Contingent liabilities are increasing.
Financials: Quarter numbers are little unstable while yearly numbers have shown uncertainty till date. Both revenue and earnings growth are declining. Margins are getting hammered year after year. Close peers are looking much stronger.

Royal Orchid Hotel (NSE: ROHLTD) (Share Price: Rs.162): Avoid

Valuation: Overvalued stock with troubled operational performance of the company.
Reasons to avoid: Earnings as well as revenue growth are in the negative territory. Company has delivered poor growth of 0.23% over last five years. Company has return on equity of -0.89 for last three years.
Financials: On Y-o-Y basis, company is posting negative growth as far as the revenue and earnings are concerned. Cash flows are negative too. The company lacks operational efficiency.

Kilburn Engineering (NSE: KILBUNENGG) (Share Price: Rs.75.5): Avoid

Valuation: Undervalued stock as compared to peers. Currently trading at a trailing PE of 15.60x.
Reasons to avoid: The company witnessed flat growth in topline in last three years and at the same time its margins were under pressure. The company has delivered poor growth in the last few years.
Drivers: Recently company promoters raised stake in the company from 57% to 60% from the open market. As per company management, topline can remain flat for next one year.
Financials: Debt is on the increasing side. In Q1FY18, net sales were down by 40% Q-o-Q to Rs.30 crores. EBITDA down by 50% to Rs.2.66 crores. PAT down by 37% to Q-o-Q to Rs.1.11 crores. Margins came down drastically.

Flexituff International (NSE: FLRXITUFF) (Share Price: Rs.55): Avoid

Valuation: Undervalued stock with trailing PE of 16.14x as compare to close peers.
Reasons to avoid: The company's promoters have pledged 81.26% of their holdings. The company is sitting on high debt with debt to equity ratio of 1.99x.
Drivers: The company's high debt is eating out from the bottom line. The pledged share percentage is also much higher which does not give a long-term clear picture of the company.
Financials: The company posted net sales of Rs.1,467 crores in FY17 vs Rs.1,325 crores in FY16. EBITDA margin stood at 12.59% in FY17 while PAT margin stood at 0.39% in FY17 which is very low.

Kids Medical System (NSE: 540812) (Share Price: Rs.53): Avoid

Valuation: Poor valuation numbers.
Reasons to consider: Peer group companies are much stronger. Numbers are stable for the peer group. The stock has low volume. Market capitalization is too low. Low market cap and low volume together add risk in the stock.
Drivers: Stock used to be in circuit most of the times and investors' capital can get stuck in such stock and even can lose a lot of it.
Financials: Numbers are uncertain because of the size of the company. With the revenue and the earnings generated by the company, it is difficult to advance for any ratio.

Mangal Credit and Fincorp Ltd. (NSE: 505850) (Share Price: Rs.3.53): Avoid

Valuation: Stock is overvalued as compared to peers.
Reasons to consider: Closed peers are much stronger and well-known players of the sector. Promoter's stake has decreased. The company has a low return on equity of 2.46% for last three years. Capitalization of the company is low and considering the size of the company, it is difficult to survive with the strong peer group.
Drivers: Stock is low volume. Low volume usually attracts circuit and investors' capital gets stuck.
Financials: Numbers are stable considering the size of the company. Future is uncertain.

Educom Solutions (NSE: EDUCOMP) (Share Price: Rs.4.8): Avoid

Valuation: Poor valuation with unstable operational efficiency.
Reasons to consider: Promoters have pledged more than 85% of their holdings. The company has a negative return on equity since last few years. Contingent liabilities are increasing on the YoY basis.
Drivers: Working capital management looking down as current ratio and quick ratio both are going up on account of high accounts receivable. The company is facing stiff competition in the industry as it is impacting margins.
Financials: Company is posting negative earnings for last few years. Revenues have come down drastically. Cash flows are negative as well.

Flexituff International (NSE: FLRXITUFF) (Share Price: Rs.63.8): Avoid

Valuation: Overvalued stock with trailing PE of 24.59x as compare to closed peers.
Reasons to avoid: The company's promoters have pledged 81.26% of their holdings. The company is sitting on high debt with debt to equity ratio of 1.99x.
Drivers: High debt of the company is eating out bottom line also pledged share percentage is much higher which does not give a long-term clear picture of the company. Also, rising commodity prices can hamper margin of the company.
Financials: The company posted net sales of Rs.1,467 crores in FY17 vs Rs.1,325 crores in FY16. EBITDA margin stood at 12.59% in FY17 while PAT margin stood at 0.39% in FY17 which is very low.

Idea Cellular Ltd. (NSE: IDEA) (Share Price: Rs.81): Avoid

Valuation: Stock is overvalued with poor fundamentals.
Reasons to avoid: On the monthly basis, the company is losing its subscriber base. In the month of July 2017, the company lost 2.3 million subscribers. Following to this, company's total customer base has decreased to Rs.19.39 crores. Data shows that the subscribers are opting to port to other networks. In the last couple of years, the company lost its market share more than 50%.
Drivers: Reliance Jio already has threatened entire telecom sector. Idea is one of the biggest losers of this. On monthly basis, the company is losing ARPU. In order to stay in the hunt, the company is losing margins just to match the offers provided by the peer group. Reliance Jio is giving offers with nearly zero margins.
Financials: Debt is rising on YoY basis. Return ratios are delivering negative results. The last couple of quarters were marginally stable but recovery is looking little far from here.

Adhunik Industries (NSE: ADHUNIKIND) (Share Price: Rs.73): Avoid

Valuation: Poor valued with PE of 88x.
Reasons to avoid: As compared to industry peers, return ratios are low for the company. Market share is low as well and decreasing on Q-o-Q basis. Most of the times stock remain in the circuit as the volume is too low.
Drivers: Even after getting stability in the steel sector, the stock is travelling downward only while most of the closed peers are on the performing side. The company has delivered poor growth in last five years.
Financials: Revenue growth is continuously down with stable earning but operating margins are getting hammered with negative operating cash flows. Debt is on increasing side as well.

Educomp Solutions (NSE: EDUCOMP) (Share Price: Rs.5.25): Avoid

Valuation: Poor valuation with unstable operational efficiency.
Reasons to avoid: Promoters have pledged more than 85% of their holdings. The company has a negative return on equity since last few years. Contingent liabilities are increasing on the Y-o-Y basis.
Drivers: Working capital management looking down as current ratio and quick ratio both are going up on account of high accounts receivable. The company is facing stiff competition in the industry as it is impacting margins.
Financials: Company is posting negative earnings for last few years. Revenues have come down drastically. Cash flows are negative as well.

Emco Ltd. (NSE: EMCO) (Share Price: Rs.16): Avoid

Valuation: Uncertain with uncertain numbers.
Reasons to avoid: The company has low-interest coverage ratio. Nearly zero growth in last five years.
Drivers: The company is dealing with operational troubles. Return ratios are unable to contribute. Contingent liabilities increasing year after year and has touched to Rs.777 crore.
Financials: Fundamentals of the company are not in support of the business of the company. Revenue growth looks uncertain on the YoY basis. Financial troubles are adding uncertainty on the earnings side.

Uttam Galva Steels Ltd. (NSE: UTTAMSTL) (Share Price: Rs.15.20): Avoid

Valuation: Poor valuation with negative earnings.
Reasons to avoid: The company has delivered poor growth of -3.4% in last five years. The company has delivered negative return ratios.
Drivers: High debt company with low interest coverage ratio. Lack of operational efficiency by the company dragged the company down. The headwind of the industry is also not in support in the current market.
Financials: On YoY basis, the company has delivered negative earnings since FY14. Splitting year in quarters, the scenario is same as all quarters are in negative territory.

India Cements Ltd (NSE: INDIACEM) (Share Price: Rs.159): Avoid

Valuation: Overvalued as compared to close peers with trailing PE of 49.27x
Reasons to avoid: Promoters have low shareholding of 28.37% and 43.83% of pledged holding. The company is not able to grow in operating profit margin since last two years. On 9MFY18 basis, margins of the company compressed by 271 bps on YoY basis.
Drivers: Strong demand in industry and higher volume; driving growth. Though increase in fuel cost dents the margins of the company.
Financials: In Q3FY18, net sales down by 4.3% YoY to Rs.1,213 crores. EBITDA margin compressed to 13.79% YoY. PAT down by 56.8% to Rs.15.24 crores.

Kesar Petroproducts Ltd (NSE: 524174) (Share Price: Rs.42.25): Avoid

Valuation: Undervalued as compare to close peers with trailing PE of 13.42x.
Reasons to avoid: Kesar Petroproducts has history of the violation of SEBI norms by promoters. Also, some of the directors do not receive any compensation or sitting fees. As per the annual report, CEO of the company receives Rs.3,10,000 as a compensation.
Drivers: The company has turnaround story since FY14 after change in management. It can be seen in numbers i.e. improvement in topline and margins. Though there is a change in the business model the same has not been mentioned by the company. As per FY13-FY14 annual report, the company has started high margin CPC Crude production but they did not mention when the operation actually commenced. It also has low capacity utilization i.e. below 40% in every segment.
Financials: In 9MFY18, revenue increased by 3.4% to Rs.130 crores YoY. EBITDA increased by 58.4% YoY to Rs.31.4 crores. PAT increased by 71.1% t Rs.24.9 crores.

Virtual Global Education (NSE: 534741) (Share Price: Rs.1.21): Avoid

Valuation: Undervalued as compared to close peers with trailing PE of 12.43x.
Reasons to avoid: Promoters have low shareholding of 28.37%. In Q3FY18, the company posted weak numbers on YoY and QoQ basis. The company has increased its receivables to 102 days in FY17 from 64 days in FY16 which is very high.
Drivers: Education and training sector has lot of competition due to unorganised players. Also, higher receivables puts pressure on operational efficiency in future.
Financials: Debtors turnover ratio slips to 3.56x in FY17 as compare to 5.71x in FY16. EPS is constant to Rs 0.05/share in FY17 and FY16.