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Thursday, June 11, 2009

Stock Chart Pattern - Bartronics India

There is a specific reason for analysing the stock chart pattern of Bartronics India, but I will not divulge it right away. This is one of those much-talked-about-by-analysts-on-Business-TV-channels kind of stock. That means it is well-known among retail investors - particularly those who can't get by without their daily dose of stock tips.

It is funny how these TV stock tips work. By the time an analyst finishes discussing the stock, it spurts in value and some times even hits an upper circuit or two. Retail investors try not to miss the bus. A few fund managers get caught up in the chase. Pretty soon, every one and his brother-in-law owns the stock.

Specially when the company is in so-called 'high-tech' fields - like barcode readers, RFID tags and smart cards - then the exuberance and excitement progresses geometrically. No one doubts the potentially huge market for these 'untapped' technological marvels. More so because they have seen it all in action in one of their '11 days, 10 nights' conducted trips to the USA or Europe.

The positive sentiment is quite apparent from the 1 year bar chart pattern of Bartronics India:-

Bartronics_Jun1109

The stock made a low of Rs 55 on Nov 20 '08, followed by a test of the low on Dec 3, '08. It made another low of Rs 61, three months later on Mar 9, '09 - thereby creating a typical double-bottom chart pattern.

The rally that followed was on expected higher volumes, albeit after the stock cleared the Rs 80 level. Both the RSI and slow stochastic indicators quickly hit overbought zones and then started to decline.

The stock reacted from Rs 115 to Rs 85, where it received support from its 50 day EMA while it consolidated sideways. Note that the on-balance volume (OBV) remained flat when the stock reacted in late April '09. This positive divergence gave an indication that the next move would be a continuation of the up move.

The sharp up-move from May 18, '09 onwards after the election results again took the RSI and slow stochastic to overbought zones. Both indicators have since moved down as the stock reacted from a long-term resistance level of Rs 180.

But observe the MACD, which is flat and the OBV, which has made a new high. These indicate a possible continuation of the rally. Looks like the chart pattern of Bartronics India is suggesting a 'buy-on-dips' strategy.

That's not why I'm writing about this stock. If some thing looks like it is too good to be true, it usually is. So I took a quick peek at the cash flow from operations and the Profit and Loss statement. And guess what? The 'excellent' profits are a big bag of wind!

In the year ending Mar '07, adjusted PAT was Rs 13.4 Crores; cash flow from operations was (-) Rs 75.7 Crores. It got worse in Mar '08. Adjusted PAT was Rs 33.1 Crores, a 'creditable' increase of 147%! But the cash flow from operations? (-) Rs 219 Crores - a fall of 189%. The company actually paid a tax of Rs 8.3 Crores with money it did not have!

How is this company surviving? A look at the balance sheet will reveal all. Almost a doubling of equity capital from Mar '06 to Mar '08; plus a whopping unsecured loan of Rs 253 Crores - at much higher interest rates than that prevailing now. No wonder the Mar '09 Q4 results were awful.

Bottomline? The Bartronics India stock chart pattern looks very encouraging, thanks to the positive sentiment in the markets, but the fundamentals are apalling. Get out before this house-of-cards comes tumbling down.

11 comments:

vineet said...

What a fantastic piece of analysis, sirji !!

I remember you once saying about infra stocks (and punj lloyd specifically, if I remember correctly) "I dont mind having missed the boom; I missed the bust too".

Will not touch this stock.

Thanks,

Vineet.

Subhankar said...

Appreciate the encomium, Vineet.

Rishi said...

Subhankarji,

Thanks for the excellent article.
If u r manually adding up the labels/tags, could you please add up "wednesday scrips" as tag/label too? This would help in searching/retrieving all the scrips you have recommended in the series.

Thanks
Rishi

Disciple of God said...

Hi Subhankar,

Have learnt a lot by browsing through your blog posts.

Have one question -- can you look at the chart of Britannia India. My question is, if stochastics show a trend up, MACD is trending up, and RSI is slightly down -- how should you read a stock? In Britannia's case, the OBV is flat

Your comments please

Thanks,
Srikanth

Nasir said...

Hi Subhankar,

I am curious to know where they used the money - in working capital?

Thanks,
Nasir

Subhankar said...

@Rishi: Good suggestion. I'll try and implement it over the weekend.

@Srikanth: Appreciate your comment. Since the query is not related to this post, I would like to respond directly. Please send me an email - my address is in my profile.

@Nasir: Good question. I don't have their annual report. Probably used the cash for a combination of working capital, capital expenditure and retiring bank overdraft.

The operations are cash negative. That means their accounts receivables must be getting bloated.

Bharath said...

Hi Subhankar,
As you said in Bartronics, ICSA India too is have negative operating cash contiously. Can you please advise on the same

Subhankar said...

Hi Bharath

Continuously increasing negative operating cash flows means the money for growth, and for payments of taxes and dividends on paper profits, have to come from share issues and loans. This makes the balance sheet weaker because of greater outgo on dividends and larger interest payments.

I try to avoid such stocks.

trimula said...

Big Accounts Dool!!

The total Indian Smart card industry is $80 million i.e. 400 Crs, now bartronics turnover for the nine months declared is 580 Crs, going by the statement of Mr.Sudhir Rao that 50% of the companies turnover comes from smart cards, i.e. 290 Crs, and a again assuming that 50% of this comes from local market i.e. 140 Crs, this means that bartronics has a market share of 35% of the indian smart card market,but unfortunately as per statictics Bartronics has between around about 10% share - i.e. 40Crs, this mean that the balance 100Crs are just NOTATIONAL SALES

trimula said...

BARTRONICS ANOTHER SATYAM IN THE MAKING
What's worse?? there could be a fraud in the making...what are the so called foreign acquisitions for? have the foreign companies been bought at a fair value or are the promoters taking a cut on exaggerated acquisition costs???
and as pointed out cash flows have been increasingly negative...the
government payment contracts are long term agreed...but then poor cash flows are certainly an indicator of possibly poor earnings quality


While the numerous projects bagged by the company are news everywhere, what is not clear is how exactly is the company making money. Where is the cash coming from and when will it come? How is it going to meet its debt without sufficient cash flows? A history of negative cash flows is a cause for worry especially when coupled with increasing debt.

Subhankar said...

Yes, lots of questions and too few answers. Management needs to be more transparent about their operational details.