“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” ― Benjamin Graham, the Intelligent Investor
A recent article posted in Money Life explained the importance of thorough analysis before going for any investment. It put forward the poor performance of few Hyderabad based companies which started with high political support and attracted many investors but have failed to live up to the expectations. Here is the summary of that write-up.
The performance and stocks of the biggest companies based out of Hyderabad are decreasing drastically along with the mounting controversies of political nexus and mis-governance.
Many of those companies started with strong political support and hence attracted many investors who were sure that the political patronage would multiply their investments. But most of the companies have capital guzzling projects that are difficult to execute and are destined to be value destroyers over the long-term. The stocks of these companies have fallen sharply in the recent past.
GVK Power & Infrastructure, Nava Bharat Ventures, KSK Energy Ventures, GMR Infrastructure, Lanco Infratech, Nagarjuna Construction Company, IVRCL Limited and Deccan Chronicle Holdings are all among those companies which once publicized the rise of Hyderabad businessman but now their stocks totally lost value. Furthermore, there are other companies like SKS Micro finance and Aurobindo Pharma which have been mismanaged and the stocks have been sold off by investors.
Surprisingly stocks of all companies climbed to the peak, before falling down. On 28th September 2010, SKS Micro finance was trading at Rs.1,490.70, and on 9th November 2011, it fell by 88%. GVK Infrastructure has seen a decline of over 87% from its all-time high of Rs.93.50 on 6 December 2007 and KSK Energy lost 20% on 9th Nov’11 itself; and has declined by 68% from its all-time high at Rs.250 on 20th May 2009.
Despite of their poor performance these companies are also included in various scandals and scams which showcased their untruthfulness even to the general public. Few are as follows:
- Unlawful land occupation against the GVK Group
- At Korba district, Chhattisgarh Lanco was denied clearance when villagers protested against burdening an already polluted area
- Allegations of bribery against the GMR group for getting land, then the Comptroller and Auditor General (CAG) report slammed the company for overshooting its budget by Rs.8,995 crore for developing the Delhi Airport
- The subsidiary of Nagarjuna Construction, Nelcast, got clearance for its thermal power plant through dummy coal linkages
- Deccan Chronicle had seen its revenues dry up while its competitors moved ahead. When the IPL scam was exposed, things became worse for the company
Besides the scams and scandals many companies faced huge losses due to multiple reasons. Some are:
- SKS Micro finance posted record losses after its big bang initial public offer (IPO) along with mounting controversies
- Aurobindo Pharma has posted Rs.80.2 crore loss for Q2 2011. US Food and Drug Administration (USFDA) issued a warning letter in May 2011 for its antibiotics-producing unit at Chitkul village in Hyderabad. Consequently, the company’s drugs produced at the unit were banned in the US market
- IVRCL is now under CBI scanner for irregularities in a tsunami housing project in Puducherry
The controversies and corruption scandals are like wake up calls for the investors. It is the time for them to realize the importance of focusing on fundamentally high quality companies rather than investing in politically well-connected companies in order to get consistent profits on their investments.
Source: Moneylife.in