What’s in the name?

Investors tend to build a preconceived notion that since Tata Teleservices is from such a well know organization it is safe to place their bets on this stock.

Oct 13, 2017 03:10 IST others Jayesh Bhanushali |

Not all horses from the same stable tend to give same performance in a race and this rule applies in the stock market as well. Investors tend to blindly trust and invest in stocks from the conglomerate group because few stocks of the group have performed well over the years.

Similar is the case with investors who have invested in shares of Tata Teleservices based on the reputation of the Tata group. Investors created a preconceived notion that Tata Teleservices which belongs to a well-established group so it is safe to place their bets on the stock.

But sadly this has not been the case, the stock after hitting an all-time high of Rs 56 in 2008 is currently trading at ~Rs 4.4, completely eroding shareholders wealth.

For instance, from the same group, if we consider Tata Elxsi and Tata Teleservices, the performance of both these stocks have been on the opposing ends. Tata Elxsi year-on-year has improved its business position by posting good numbers. While Tata Teleservices has been big laggard with debt amounting to Rs 31K Cr leading to an acquisition by Bharati Airtel at a throwaway price.

Following is a brief comparison between Tata Elxsi and Tata Teleservices based on their performance in the last seven years.

Share Price

Company

Current Market Cap Cr

Oct-10

Oct-17

Tata Elxsi

5404

 148

866

Tata Teleservices

801

22

4.4

Take the case of two investors Mr A and Mr B who had invested an equal amount of Rs 10,000 in Tata Elxsi and Tata Teleservices respectively in Oct 2010. Tata Elxi has managed to reward Mr A handsomely compounding his money at an annual growth rate of 28.55% and also providing him a divided amount of Rs 4623 (67 shares*(Rs69 = Dividend amount of last 7 years)).

Tata Teleservices, on the other hand, has completely eroded the capital of Mr B, with his initial investment of Rs10,000 turning to just ~ Rs 1816 in a span of 7years, eroding ~80% of its network. Since the company is habitual loss-making, it did not pay any dividend to its shareholders in the last 7 years.

Following are the charts of both the companies:

Tata Elxsi chart from October 2010 to till date.

Tata Teleservices chart from October 2010 to till date

So how can we avoid such blunder?

Any investor with basic fundamental knowledge could have identified the problems Tata Teleservices had got into and could have avoided investing in the stock. The revenue of the company has remained stagnant in the last seven years increasing marginally from Rs 2069 Cr to Rs 2521 Cr while the loses increasing ~9 folds from (Rs 298 Cr) to – (Rs 2729 Cr), whereas in the same time frame Tata Elxsi was able to increase its top-line from Rs 376 Cr to Rs 1261 Cr and profits surging from ~ Rs 48 Cr to ~ Rs 181 Cr. Some of the common fundamental parameters and ratios that an investor can make use of to conduct a basic study about the company are

Annual revenue growth analysis

Annual net profit growth analysis

Annual cash from operating activity analysis

Annual ROE analysis

Annual ROCE analysis

Annual Debt/Equity analysis

Last 7 years fundamental comparison of both the stocks.

Tata Teleservices

Indicator

TTM

Mar-17

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

Mar-11

Mar-10

Revenue

2,521

2,702.9

2,972

2,892.73

2,731.1

2,634.5

2,488.4

2,248.7

2,069.1

Operating Profit

-431.1

-355.59

760.59

600.19

526.81

449.62

529.8

244.62

331.79

Operating Margin

-

-13.16%

25.59%

20.75%

19.29%

17.07%

21.29%

10.88%

16.04%

Net Profit

-2,729.8

-2,356.4

-497.96

-615.25

-560.08

-658.77

-517.55

49.9

-298.01

Earnings per Diluted Share (Unadj.)

-13.96

-12.05

-2.55

-3.15

-2.86

-3.47

-2.73

0.26

-1.57

Return on Equity

-

39.88%

14.37%

20.73%

23.80%

36.75%

45.64%

-8.09%

44.72%

Tata Elxsi

Indicator

TTM

Mar-17

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

Mar-11

Mar-10

Revenue

1,261.96

1,233.04

1,075.21

849.4

772.1

604.69

514.46

411.01

376.37

Operating Profit

297.6

272.82

247.72

178.04

136.85

53.79

67.54

46.76

67.37

Operating Margin

-

22.13%

23.04%

20.96%

17.72%

8.90%

13.13%

11.38%

17.90%

Net Profit

181.11

173.29

154.81

102.9

75.11

20.99

33.95

31.73

47.91

Earnings per Diluted Share (Unadj.)

58.15

55.65

49.71

33.05

24.12

6.74

10.9

10.19

15.39

Return on Equity

-

31.00%

40.14%

36.32%

31.99%

10.94%

17.96%

17.58%

27.54%

From the above data, we can clearly see that each stock is different and the group company cannot act as a shield if the performance of the stock is weak. We can clearly see that both the stock have performed inversely with Tata Elxsi beating Tata Teleservices in all the parameters.

Hence, it’s extremely important that an investor performs at least basic analysis before investing in a stock and avoid relying just on big names.

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