Manappuram Finance: Why the stock is down 31% in 2 days

Manappuram Finance opened higher on Thursday, rising as much as 8 per cent, before slipping in to the red. The stock has fallen 31 per cent over the last two sessions. Manappuram Finance shares were down 1 per cent to Rs. 23.70 as of 10 a.m. on the National Stock Exchange. Muthoot Finance, another gold finance firm, traded 2.5 per cent higher at Rs.179.40 after falling over 10 per cent in the last two sessions.

Gold prices are falling: According to Reserve Bank of India regulation, gold loan companies can lend up to 60 per cent of the value of jewellery.Manappuram offers loans at 75 per cent of the scrap value of jewellery. At 24 per cent per annum interest, the principal and accrued interest will become 93 per cent of the value of jewellery in one year's time. This scenario leads to an incentive for borrowers to default. So, companies are forced to reverse interest income to prevent defaults.

Profit hit: Manappuram Finance revised its January - March guidance from a profit of Rs. 90 crore to a loss of Rs. 50 crore due to interest reversals of Rs. 250 crore. According to Espirito Santo Securities, Manappuram management explained that this has occurred on Rs. 1,500 crore of loans which were disbursed between September 2011 and January 2012 and expected accrued interest of Rs. 500 crore up to March 2013. The management said that there may be further losses if the gold price declines from current levels.

Risk management practices: There is a perception that the gold loan business is secure as the underlying asset is highly liquid and the borrower has emotional attachment to the asset. However, the recent episode highlights that slippages are very high (15 per cent of September-December 2011 disbursements turning bad) and even in a stable gold price scenario the company may incur losses, Espirito Santo says.

Bank of America-Merrill Lynch downgraded Manappuram Finance to "underperform" from "buy", and reduced its target price to Rs. 20 from Rs. 48, citing higher-than-expected under recoveries.

Corporate governance issues:  Espirito Santo says Manappuram management had selectively disclosed the revision in the quantum of interest reversals before making it public. This is the second instance of miscommunication with investors. Management committed similar mistakes during Q3 FY13 results. We downgrade our corporate governance rating to Red from Amber, the brokerage added.

                                   This report is taken form NDTV Profit website

RBI cuts repo rate by 25 bps, says room for further easing limited

The Reserve Bank of India (RBI) on Tuesday cut its key lending rate by 25 basis points (bps) in an attempt to prop up growth in the slowing economy, drawing comfort from inflation based on the wholesale price index staying under 7%, but warned that room for further monetary easing was limited.

The apex bank kept the cash reserve ratio (CRR) unchanged in its mid-quarter monetary policy.

The rupee weakened and the BSE’s benchmark Sensex fell on RBI’s warning.

Noting that risks on account of the current account deficit (CAD) remain significant, despite a likely improvement in the fourth quarter, RBI said, “Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited.”

DMK withdraws support from UPA coalition

The Dravida Munnetra Kazhagam (DMK), a key regional ally, pulled out of India’s ruling coalition on Tuesday in protest against the government’s position on a US-backed United Nations resolution on war crimes carried out during Sri Lanka’s civil war.

The DMK is based in the southern state of Tamil Nadu, and has often pressured the Indian government to do more to protect Sri Lanka’s minority Tamil population.

The DMK has 18 seats in the lower of house of Parliament as part of Prime Minister Manmohan Singh’s coalition, which already rules in a minority. Singh’s Congress party can continue to govern with parliamentary support from two other regional parties.

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Big bull Jhunjhunwala losing his magic touch

Is Rakesh Jhunjhunwala, India’s most followed stock investor, losing his magic touch? It seems so going by the performance of some of his most recent investments. Jhunjhunwala’s recent market bets from Pipavav Defense and Offshore Engineering (earlier Pipavav Shipyard) to DB Realty, Sterling Holidays and Resorts to A2Z Maintenance (bought from the secondary market immediately after IPO) are either quoting lower or at similar levels since he invested in them about two years ago, an analysis by Financial Chronicle revealed.Jhunjhunwala, popular in market circles as ‘Warren Buffet of India’ for his long-term investment approach, may still have the last laugh after a few years if the stocks zoom as in the case of his other famous investments such as Titan, Crisil, Geojit and others, said stockbrokers.However, for now, RJ’s reputation built over the years is under a serious threat.DB Realty, where he bought 12.50 lakh shares at an average price of Rs 90.21 apiece in October last year, is now trading at Rs 79.75, causing Jhunjhunwala Rs 1.3 crore loss as of Monday. 

Similarly, the big bull is nursing his wounds in Pipavav Defense and Offshore Engineering, owned by SKIL Infrastructure, in which he invested in September 2011. The Rs 81.90 crore investment in Pipavav Defense and Offshore Engineering was made in convertible shares issued at that time for Rs 78 apiece. The conversion, due in 18 months, falls in the coming weeks.

Shares of Pipavav Defense and Offshore closed at Rs 67.10 apiece on Monday, a loss of nearly Rs 11 a share for the billionaire, who was ranked #46 richest Indian by Forbes.Similarly, Jhunjhunwala’s move to garner investor faith by buying over 16 lakh shares in A2Z Maintenance, a company he backed, on the day of the company’s listing on the stock exchanges has backfired. Though the exact price he paid to buy these shares is not known, the stock closed at Rs 333 apiece on the listing day compared with the IPO price of Rs 400.The share hit a new low of Rs 26.40 on Monday, wiping off at least Rs 50 crore from his secondary market investment. 

An email sent to Jhunjhunwala and Utpal Sheth, CEO of Rare Enterprises, the investment firm founded by the former, elicited no response.Vijay Kedia, director of Kedia Securities, who himself models his investments on Jhunjhunwala, says the ups and downs are part and parcel of the market. “We need to understand that the market is supreme,” he said, but added that “Jhunjhunwala is Jhunjhunwala. He is not running a 100-metre or 400-metre race. He is in a marathon. He’ll stay invested for five years or 10 years.”Kedia felt the recent crash in mid-cap stocks dented investor confidence and this may have impacted Jhunjhunwala-owned stocks as well. Perhaps, only the saving grace is that Jhunjhunwala’s investment in Sterling Holidays and Resorts, where he invested at Rs 75 a share in September 2011, has gone up by a paltry Rs 5, or over 6 per cent, over the past 18 months. The stock is trading at Rs 80 a share. The letdown for investors in A2Z Maintenance, which went public in December 2010 showing Jhunjhunwala’s backing as he continued to hold nearly 20 per cent, has forced the postponement of IPOs of several other firms that he backed.During the road shows for A2Z Maintenance, the 52-year-old investor promised that at least six companies that he backed would be listed in the coming years. Some of the unlisted firms that he has invested in include Topsgroup, John Energy, Hungama Digital and Concord Biotech.
                 This article is taken from My digitalfc.com.I express my sincere thanks to this reporter  Rajesh Abraham

BERGER MAY BUY SHALIMAR PAINTS

BERGER PAINT IS LIKELY TO ACQUIRE SHALIMAR PAINTS......LIKELY TO BE 180/- PER SHARE.......OFFICIAL ANNOUNCEMENT LIKELY AT 3.30pm TODAY