During the last few weeks when we were offline, the situation in the stock markets did not show any significant improvement. The markets were range bound and the SENSEX closed the previous week at 3559. It has not been an encouraging time for small investors since there has been no change in the SEBI management and the Finance Minister seems to have given all the reins to Mr D R Mehta.

True to its form, SEBI after a brief period of silence re-launched its bear operations with a decision to ban Badla. As has been discussed in these columns, if Stock Markets are for attracting “Investments”, there has to be a fundamental support for “Growth”. This can come only from a policy support for “Buyers” for investment and not through a continuous support for “Sellers” for speculation. The SEBI argument that “Badla” and “BLESS” are equal and have to exist or be banned simultaneously is a seriously flawed argument.  

Badla brings in private finance for Buyers against the security of shares contracted to be bought in the current settlement, (as against Bank finance against shares which is a finance against shares already bought) . On the other hand, the stock lending schemes like BLESS operates on using investor’s demat holdings with institutions such as Stock Holding Corporations, to assist “Short Sellers” to bring down the market , without their consent and without passing on any benefit. 

While Badla provides a supply of “Money” from a relatively unlimited  monetary resource, Stock lending provides a supply of scrips from an otherwise limited stock of shares. SEBI, is using the present scam publicity to choke funds to the buyers and reduce their buying power by banning Badla. Simultaneously, since RBI has initiated actions to choke funds flow to brokers, the Bulls have their hands tied behind their back. The policies are therefore tailor made for further bear onslaught.

It is necessary to examine the legality of the stock lending schemes from the point of view of “Whether there is a consent of the Demat holders” for treating their holding as “lendable” and if so “Should they not be compensated out of the rewards gained by the demat institutions”.

When the biggest threat to investors is from the regulator himself who is backed by the Ministry of Finance to the hilt, investors have to be cautious. A decision on  banning of Badla has been postponed to May 14 for some technical reasons. But if Mr Mehta’s continuance in SEBI is any indication, it is clear that this round will also go to the Bears. The assembly results and reverses if any to NDA will again raise the demand for “Change of Government” which also may depress the markets for a while. The situation may change after a few weeks with the improvement of India’s relations with USA with defense co-operation, which could bring decisive  long term benefits to the Country. Under the circumstances, Investors need to steer clear of volatile scrips and chose to be invested in relatively less volatile scrips and industries.

In this background, a scrip to watch out is Cadbury India a leading confectionery company. Cadbury is today a generic name in many confectionery products and has effectively withstood the competition from other MNC s such as Nestle. The looming threat of “Imports” consequent to recent changes in policy may pose a threat to the company in the medium term. However the “Brand” preference and distribution strength of the Company is so strong that it will retain its market position even against imported chocolates from Taiwan or Dubai. 

The financial highlights of the Company indicate a continuous growth of Sales and Profit year after year. The most notable point of Cadbury’s financials is its focus on saving its raw material costs. Earlier, as most of the Cocoa was imported, the landed cost was high. Now, the company has been able to develop local supplies to the extent of 50 per cent. This is directly contributing to its bottom line. It is estimated that  the company saved worth Rs. 14.93 crs on account of material costs in FY 2000. 

Financial Highlights

Particulars	1998	1999	2000	200(Q1)
Sales (Rs crores)	428.33	511.08	571.14	149.91
Net Profit(Rs crores)	26.22	36.70	52.03	12.39
Equity(Rs crores)	23.80	23.80	35.71	35.71
EPS (Rs)	11.10	17.32	14.65	13.88(annualized)

 

 In the first quarter of the current year, the turnover has again grown by around 7 %. The profits for the quarter as compared to the corresponding quarter last year have also increased by 15 %. The future for the Company’s products and profitability looks steady despite any changes in the stock market sentiments.

The shares were last quoted around Rs 420 against a 52 week high of Rs 698 and low of Rs 390. In the present uncertain terms, Cadbury’s appears to be a good share to park investible surplus.

Na.Vijayashankar
May 12, 2001
http://www.naavi.org