Kitex

Whats up with Kitex? Stock moved 10% up and then down in last couple of days. Have not seen any news either.

 

But what about its future? Could it go up from here on?

 

It is a next page industry. Very bullish in long term.

 

Hi Meenakshi,
The main concern with Kitex is 23% of promoter holdings (54%) are pledged. Am also willing to invest in Kitex but worried and not invested because of more pledging.
Can you please share your view?

 

Thank you Meenakshi

 

Hi meenakshi,
Excuse my ignorance but i would like to know how the face value of a stock really impacts the price.kitex has a face value of 1rs and is quoting around 870 while page is at 14k with a face value of rs10 . . .so i am thinking it is an equivalent of 8700 vs 14000 which is preety much the ratio of the net profits and that kitex is fairly valued wrt page industries.

And my point is when i hear a lot of folks saying kitex would become the next page industries and stuff....could ypu pls help me understand how to compare these kinf of stuff and if my assumption of kitex being fairly valued a fair assumption.

 

Well, to be honest face value is not at all relevant today. It is just used as a base to calculate the dividend percentage(Usually a dividend of 30% is Rs 3 if face value is 10 and Rs 0.3 if face value is 1) . Also there is no guarantee that if you hold a stock having face value 10 in future if the face value turns to Rs 1 you would get 10 shares of the same. This generally happens but there is no guarantee as some small companies also choose to devaluate their shares, so if you held 100 shares of Rs 10 face value after devaluation you will still hold 100 shares but now of Rs 1 face value.

I think Colgate did something like this a few years back where in they adjusted their face value from Rs 10 to Rs 1 and they returned Rs 9 to shareholders. So it was like a Rs 9 dividend at that time. Although to be fair with the company its stock price didnt come down after the action.

With respect to your query regarding comparing the companies, I personally feel face value shouldn't be accounted when you trying to analyze or compare. Price can be a point of comparison but price alone can't justify a comparison. It is wrong to compare MRF with an Apollo Tyre just on basis of the stock price. I think there are other ratios that you need to look at for example to list a few of them that can help is price to earnings ratio, returns on capital employed, net profit margin, debt equty ratio, the kinds of assets the company has, etc etc.

I hope I answered your query.

Happy Investing

 

Cool...this makes perfect sense

I am using other ratios also to compare but my query was if page goes for a split in the future it might end up being around 1k which is comparable to kitex trading at 870 odd. . . . .

This clarifies a lot of things to me .....and a transition from textbook to practical world too

Thanks.

 

Yes it can come around 1.4k based on today's price but like I said it is foolish to compare two stocks just by their current market price. Also one thing to note here is that Page is currently trading at roughly 84 times its price earnings and 34 times it's book value whereas Kitex is trading at 41 times its earnings as well as roughly 16 times it's book value both of which are quite a lot by any given parameters. If they fail to deliver the desired earnings in the future or even if the sentiments towards them changes the stocks could see correction. In hindsight, I would like to give you an example of DLF and Unitech, both of these stocks were darlings of the market during the 2007-08 rally but their earnings couldn't match up the expectations from the market resulting which a heavy correction was seen in them and currently both of these stocks are struggling with their own set of problems.