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Sluggish earnings sends TVS Suzuki skidding

S. Vaidya Nathan

THE broad markets continue to be in weak terrain despite a recovery of sorts in Monday's trading after Friday's sharp downtrend. In the past fortnight, much of the price action was centered on the IT sector stocks both on the way up as well as down on Friday.

But there are indications that the markets are re-pricing many stocks in line with earnings announcements. Here more of the action has been on downside. Some of the key trends in the trading in the past fortnight are:

*Driven Down: The stock of TVS Suzuki had had a tough time following indifferent earnings performances. The TVS Suzuki stock has after a long time since its turnaround in the early 1990s slipped below the Rs 100-mark.

With the competitive scenario in the two-wheeler industry getting intense by the day and with the growth rates not being what they were, the stock may well have to weather more rough periods.

The costs of promotional campaigns to back new product launches has also started to tell on the bottom-line. The company also is yet to completely get-over the costs imposed on it by the Spectra scooter project.

*More Gloss But... :Reckitt & Benckiser has a more strong parent with a wider range of products now and is also making a splash with new product launches. It may be a visible company all over the supermarkets but the benefits of the new product launch es is yet to percolate to the earnings stream. With rather sluggish earnings growth for a company which derives a substantial chunk of its revenues from urban markets.

*Impending Slowdown :The possibility of the automobile industry going through a protracted period of decline in output or at least a short-term jerk appears to have hit the Mico stock hard. The company has decided to switch to a five-day week. This has n o doubt been triggered by sluggish demand for its products.

The stocks has shed close to 8 per cent and now trades at around the Rs 2,400-mark with the possibility of price trends having a further downward bias.

*Surprise Element: The price trends in the German Remedies' stock continues to be some kind of a surprise.

An open offer from the Cadilla group is on the cards at a price of Rs 650 per share for 20 per cent of the equity. This follows the acquisition of a 27 per cent stake from Asta Medica by Cadilla.

But despite the open offer priced higher than market levels at Rs 650, the stock has shed Rs. 95 in the past week on sustained declines.

There appears to be no reason for concern over the offer been given effect with Cadilla bankrolling the stake acquisition.

But concerns over a future within the Cadilla group and over licensing arrangements may be behind the weak trend. But there may be some good arbitrage opportunity here for decent returns over a two-month period. That s buying in the market at around Rs 4 35 and exiting through the open offer at Rs 650.

*No Fertile Prospects: The prices of agro-chemical companies have been going through the wringer with uncertainties abounding about the size of the agricultural output. And more particularly, the drought-like conditions in Gujarat and Andhra Pradesh amon g others may place question marks over the review and earnings growth.

Stocks such as Aventis CropScience and Syngenta have been on a sharp downtrend with prices touching levels which may have seem unlikely at one point in time.