Friday, January 12, 2018

Stock Chart Pattern - 3i Infotech Ltd (An Update)

The following concluding comments were made in the previous technical update to the stock chart pattern of 3i Infotech: "Top line is sliding and bottom line is red. Over-leveraging in a bid to grow fast has ruined the balance sheet. Stay away. If you are stuck from higher levels, use any rally to exit."

That update had been posted more than 5 years back. The only thing of note the stock did since then was rise from a low of 6 (touched on May 7 '14) to a high of 13.60 (on Jun 13 '14) - a quick gain of 125% in 5 weeks that gave stuck investors an opportunity to exit.

In less than 2 months, the stock slid down below 10 and dropped all the way to a lifetime low of 2.20 on May 25 '15. Investors got a roller-coaster ride, as the stock rose to 6.80 on Jun 25 '15, and then dropped to 2.70 on Aug 20 '15.

The stock price closed in the range between 2.70 and 6.80 during the next 28 months before suddenly breaking out in Dec '17. What was the trigger? There were two. First, CRISIL upgraded the company's credit rating from 'D' to 'BB' (stable).

Then came news of the company pre-paying three instalments of its debt (worth Rs 195 Million) which were due in Oct '18, Nov '18 and Dec '18. How did a loss-making company pre-pay its debt? 

The reason may be found in the cash flow statement. 3i Infotech has generated positive cash flows from operations in 4 of the past 5 years. Bulls must have felt encouraged by the positive news. 

The stock has shot up to test its previous closing high of 9.10 touched three years back. Daily technical indicators are inside their overbought zones. The stock can consolidate or correct a bit before trying to move higher.

Q3 (Dec '17) results will be announced on Jan 30 '18. Consider entry if there are definite signs of a turnaround in business. (Turnaround stories can generate good profits. Note that the equity capital is bloated, so don't expect a rise from 10 to 100 in 6 months.)


kunal shah said...

Hi sir
But the results are declared today. Copied from business standard website

3i Infotech was locked at 5% upper circuit at Rs 9.17 at 14:41 IST on BSE after consolidated net profit rose 40.55% to Rs 22.77 crore on 3.22% rise in total income to Rs 243.75 crore in Q3 December 2017 over Q2 September 2017.

Net loss of 3i Infotech reported to Rs 2.10 crore in the quarter ended December 2017 as against net profit of Rs 56.79 crore during the previous quarter ended December 2016. Sales declined 15.25% to Rs 58.12 crore in the quarter ended December 2017 as against Rs 68.58 crore during the previous quarter ended December 2016.

Kindly correct me if this data posted it wrong .


Subhankar said...

My mistake, Kunal. Thanks for pointing it out.

Results were declared on Jan 12 - as you've mentioned. Quarterly loss is on standalone basis whereas Quarterly net profit is on consolidated basis. For a company that has so many subsidiaries, consolidated figures are the ones to be considered.

The 9 months (YTD) consolidated figures are disappointing, to say the least. Lower sales, lower profits and increase in equity capital does not make an encouraging combination.

kunal shah said...

Thank you sir for posting its 9months result, how would market react on Monday kindly throw some light on it .