Saturday, June 1, 2013
Traditionally ,Investing in stocks considered as a high risk high return game compared with other opportunities like Real Estate ,Gold..etc.Even in stocks itself the degree of risk -return is different in the case of Blue Chips,Large Caps,small caps..etc.Investing in turnaround companies is a favourite option of high risk takers to generate maximum return at the cost of highest risk.This strategy not at all suitable for average or below average risk takers .Investment in such stocks may make millionaire's as well as bankrupts based on the accuracy of one’s calculations.What I mean is , below two stocks are from such a category and suitable only for investors who are even willing to forget their entire capital invested and also having enough patience.
2 Ashapura Minechem
This company along with its subsidiaries are the largest exporters of bentonite from India and one among the biggest five in the world.In addition to bentonite, company is in the production of many other minerals including sizable operations in Bauxite , Kaolin, Attapulgite, Barites..etc.Its major product –Benonite- is widely used in metal casting, iron ore pelletizing, civil engineering, drilling, paper, detergents, cosmetics..etc. Bauxite is the basic ore for producing Aluminium.Company was a darling of investors till 2008 and its share price (post FV split) was around Rs.400-500 level.A big blow came in the form of the ban on export /sale of bauxite by the government of Gujarat in 2008-09.Only because of this unexpected ban many issues followed in the form of forex losses and claims by few shipping companies.Kaolin plant in Kerala went into trouble on account of some local issues.All these incidents derailed company’s operations and ends in big losses.New mineral policy announced by Gujarat Government in 2009 -10 bring clarity in mining policy and permitted bauxite mining again.But by that time company’s financial health eroded a lot and it declared as a Sick company in 2012.After many month’s sincere attempt by the management, now the company is in a recovery mode.Debt of the company restructured and promoters brought more funds into the company by way of subscribing 40,00,000 Equity Shares of Rs. 2 each at a price of Rs. 36.83 per share and 40,00,000 Convertible Warrants to be converted into equity shares.Claims by shipping companies are challenged by the company in court and case with one company already settled out of court.Management of Ashapura expecting a favorable verdict in other cases too.On the financial front company showing sharp improvement in past few quarters.In latest full year company reported a Sales of Rs.771 Cr and its bottom line also showing remarkable improvement even excluding other income component.
Due to environment related issues ,entry of new players in this segment is not very easy now and probably in future.This situation giving special advantage for existing miners .I believe ,the testing time of this company is over and it is the time for a new beginning in the history of this company .Currently stock is trading around Rs.42
This stock once recommended around Rs.60 ( old posting HERE) which is currently trading around Rs.15.Recently company received permission to restructure its debt .As in the above case ,now promoters are making additional investment of Rs.57 Cr by subscribing 22099206 shares at a price of Rs.25.20 each.Company is still a reputed brand in its category and reported a turnover of Rs.800 Cr in latest FY 2012-13.
There is lot of companies moving between life or death situation.Reasons may vary from fraud promoters,sluggish economic growth,adverse rupee movement..etc etc.Even after restructuring or debt reduction only a few will survive and regain their past glory .Promoters interest to bring back business and their hard working is the moot point deciding the success or failure.Among many of these companies ,the above mentioned two cases deserves special attention not only due to the fund infusion by promoters but because of the fact that even they are going through tough times still they are reporting respectable top line in the range of Rs.700-800 Cr each.I think ,their business are still viable and they can recover from the trouble if properly managed .Promoters may be in a better position to understand their SWOT by now.Hence I recommending both these stocks for extreme risk takers .
Price History :
Company Name All time High Low( UA) High Low CMP
( Un Adjusted) (Adj*) (Adj)
Ashapura Minechem* Rs.1212 Rs.9 Rs.567 Rs.9 Rs.42
Nitco Ltd Rs.336 Rs.12 Rs.336 Rs.12 Rs.15
· * stock Split in 2006
Link to Ashapura Minechem Website HERE
Link to Nitco Ltd Website HERE