Slump 62%, the second-highest fall in a single day in over a decade for BSE-500 stocks after the Satyam crash.
Global Telesystems Limited (GTL) and Global Telesystems Infrastructure (GTL Infra), two sister concerns with large holdings by foreign investors, crashed on Monday after reports that Mauritius may start taxing capital gains.
GTL closed at Rs 127.80, down 62.40 per cent, whereas GTL Infra fell 43.27 per cent to close at Rs 12.85 even as the Bombay Stock Exchange Sensitive Index, or Sensex, fell over 350 points or 2 per cent.
GTL’s fall was the second highest in a single day in over a decade for BSE-500 stocks, after Satyam Computer fell 77 per cent on January 7, 2009, according to Bloomberg.
Both GTL and GTL Infra had slipped 15 per cent and seven per cent on Friday, respectively. In two days, GTL and GTL Infra have lost market capitalisations of Rs 2,063 crore and Rs 1,232 crore, respectively.
GTL INFRA | |||
Full year ended | Mar-10 | Mar-11 | % chg |
Net sales | 347.95 | 490.12 | 40.90 |
PBIDT | 224.17 | 322.78 | 44.00 |
Interest | 28.43 | 254.41 | 794.90 |
Reported PAT | -2.58 | -139.29 |
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Net worth | 1865.37 | 1870.10 | 0.25 |
Loan funds | 4470.51 | 5039.35 | 12.72 |
(Rs crore) Compiled by BS Research Bureau Data Source: Capitaline |
According to shareholding details filed with the exchanges, FIIs hold close to 15 per cent in GTL. One foreign entity, Technology Infrastructure, holds 23 per cent in GTL Infrastructure as on March 31. Most of these investments are through the Mauritius route, according to brokers.
The company went in damage control mode, with Manoj Tirodkar, CMD, GTL, clarifying to a television channel that Technology Infrastructure is a long-term partner and would not have sold shares in the company.
Though the company issued a statement to both the exchanges that promoters continued to hold 52.71 per cent stake and had pledged only 12.85 per cent of the equity capital, the share price continued to tumble. “The company would like to confirm that neither the promoters nor entities related to the promoters have sold any shares, including shares that have been pledged,” said the statement. However, market observers said there were serious concerns, including the scrapping of its $300-million fund-raising plan by GTL Infra.
Many market observers were quite surprised. Deepak Mohoni, CEO, trendwatchindia.com, said, “I would describe the crash unexplained. It was neither fundamental nor technical.”
According to him, the crash in the stock price snowballed as there was a lack of buyers. “When someone is desperate to sell and people refuse to buy, it creates panic and the stock crashes. Typically, if everything is right with the company and stock crashes like this, the promoters would come and buy the stock. That would be an indication that things are fine.” Mohoni said.
However, there are concerns, as well. Said S P Tulsian, an independent market analyst, “There are some serious concerns about the company. For a few years, the company has had cash reserves but it has borrowed heavily as well, which is not a great sign.”
Said a person who deals in these shares, “Foreign institutional investors hold nearly 15 per cent of GTL. Many of these investors come via the Mauritius route. These investors could have dumped the shares after reports about the Mauritius government agreeing to capital gains being taxed here.”
GTL Limited is a network services player, offering services and solutions to telecom carriers and technology providers with operations in more than 40 countries. On a standalone basis, it reported a 54.5 per cent rise in total revenues of Rs 2,404 crore for the year ending March 2011. However, the net profit at Rs 139.75 crore (after seeing a 62.5 per cent rise in interest costs to Rs 130.92 crore) was down 11.8 per cent. Even analysts have turned underweight on GTL Infrastructure, the only listed entity in the telecom tower business.
Though the company gained market share (to 10 per cent) after the acquisition of Aircel towers, the key concern according to analysts at HSBC Securities and Capital Market is its weak balance sheet. To put some numbers in perspective, the company saw interest costs rise ninefold to Rs 254.41 crore in 2010-11 as compared to Rs 28.43 crore in the previous year. This ate away most of the Rs 322.78 crore operating profits made by the company last financial year. Operating profits fell 65 per cent year-on-year to Rs 68.37 crore. Thanks to over Rs 207 crore depreciation, the company posted a loss of Rs 139.29 crore at the net level in 2010-11. As on March 2011, the company’s total debt was Rs 5,039 crore with a debt:equity ratio of 2.7 times.
HSBC Securities has estimated a net interest outgo of Rs 1,000 crore and Ebitda of Rs 950 crore in 2011-12, implying the company is expected to post an operating loss in the current year. The brokerage firm estimates the company is likely to end the current financial year with a net debt of Rs 9,700 crore and a debt to equity ratio of three times. Though Ebitda margins in the tower business are high (FY12 estimated margins at 58 per cent), high debt and subsequent interest outgo mean the company has barely enough to pay its interest costs.
While the valuations look attractive currently, the key trigger for the stock would be a fund infusion/strategic partner which will help deleverage the balance sheet. This, coupled with an improvement in tenancy through orders from new Broadband Wireless Access players such as Reliance Industries and 3G companies, is a positive for the stock.
Brokers restrict small traders as margins bite
A large number of stock brokers did not allow small traders to create any fresh positions, especially on the long side as they came under margin pressure on Monday. This was on the back of a sharp plunge in the share price of Global Tele Ltd (GTL) and GTL Infra, coupled with a crash in the CNX S&P Nifty, the largely tracked derivative index.
Last Friday itself, the GTL stock fell 17 per cent from Rs 408 to Rs 338 on the stock exchanges. Monday again on opening, GTL was down Rs 30 from Rs 338 in the cash segment and Rs 15 in the futures and options (F&O) segment on NSE. While a large number of traders in the market were still trying to figure what was wrong with the counter, GTL continued its free fall and touched a low of Rs 124 in the F&O segment -- a nearly 60 per cent fall. Another group company GTL Infra, which is also in F&O, too slipped 43 per cent and touched a low of Rs 15.25 from its previous close of Rs 29.6.
Notional positions in the F&O segment worth over Rs 223 crore stood in GTL and over Rs 140 were noted in GTL Infra’s counters last Friday. Such a brazen fall in the share prices of these two companies eroded a substantial chunk of brokers’ margin money deposited with the exchanges, which could be 30-50 per cent.
The situation was bad as the Nifty index fell 3.1 per cent or 170 points in intra-day trade. Before the closing, Nifty recovered only 62 points from the day’s low, which made brokers cautious as small traders are often the first casualty of such a sudden market crash. Nifty fell as Reliance Industries, realty and technology stocks were the worst hit.
“Brokers will be cautious in the coming days too in allowing retail clients to create positions in the derivative segment. They will ask for full margin from clients. At least for the new few days, brokers will not take any risk in terms of margin collection as the situation is extremely dicey,” said a Mumbai-based dealer with a large brokerage house. In case of a major fall, the exchanges are known to raise the Value at Risk (VaR) and SPAN margin applicable on stock and index futures, which are between 30-50 per cent when volatility is less. VaR margin is the maximum loss that a trader is likely to incur in a stock during a certain period.
Based on this, the exchange imposes the margin and the money is collected from stock brokers. It is applicable for all securities in rolling settlement, which are classified into three groups. SPAN margin, which is similar to VaR margin, is applicable for Nifty futures. Brokers raise these funds from their clients or ask them to square off positions in case of failure. Excnges did not raise the limits of these margins on Monday but brokers were collecting money from clients to fill the gaps in existing margins after a sharp fall.