23 November 2015 07:20:45 IST

10% of listed cos have wiped out shareholder wealth

Fallout of global commodity downturn, high interest costs, failure to innovate

The recent initial public offering (IPO) by low-cost carrier IndiGo raised quite a few eyebrows as the company’s net worth had turned into a negative ₹139 crore as of June 30, 2015 from ₹426 crore just a quarter earlier due to a massive dividend payout.

But companies whose entire shareholder wealth has been wiped out are not rare in the Indian market.

A BusinessLine analysis shows that out of 3,133 listed companies, as many as 285 had a negative net worth towards the end of fiscal year 2014-15 (FY15).

This was more than twice the number of such companies in 2011. Among the big ones, Suzlon Energy, Lanco Infratech and Shree Renuka Sugars witnessed a sharp reversal. From being in the black in 2011, their net worth slid into the red by 2015.

What’s worse, nearly half of those with a negative net worth in 2011 saw further deterioration by 2015. Tata Teleservices (Maharashtra), Jet Airways, Quadrant Televentures, Shah Alloys and LML are some examples.

Investors can, however, draw some comfort from the fact that 86 per cent of these stocks were from the micro-cap (market capitalisation of less than ₹100 crore) segment.

Why they’re negative Many companies witnessed net worth erosion due to the global downturn in commodities. Take steel companies, for instance; their realisations have been hurt by the weakness in the global steel industry.

The surge in cheap steel imports from countries such as China has hit the sales of domestic steel manufacturers. Visa Steel and Jai Balaji Industries are cases in point.

Similarly, the fall in sugar prices amid the glut in the global market has adversely impacted sugar companies. The rising cane prices in India have only added to their woes. Those affected include bigwigs such as Shree Renuka Sugars and smaller players such as Mawana Sugars and Simbhaoli Sugars.

Companies such as Lanco Infratech, Jet Airways, Jai Balaji Industries and EL Forge have significant debt on their books. High interest costs have contributed to the erosion of their net worth.

For Hindustan Motors, maker of the Ambassador car, the failure to innovate even as demand for the car dropped has been its undoing.

The company was finally forced to shut down its manufacturing plant in West Bengal last year.

Likewise, Moser Baer India, a manufacturer of CDs and DVDs, which are no longer popular, has been losing out. Cheaply available Chinese products further added to its woes. Zenith Computers, too, suffered due to consumers gravitating towards smart phones and tablets.

Stock price up However, investors seem to have taken a lenient view on some of these companies, showing a willingness to buy their stock. This has mostly been due to hopes of their prospects improving.

The stock of Jet Airways, for instance, has run up 75 per cent over the past year in anticipation of gains from higher passenger traffic and lower ATF (aviation turbine fuel) costs due to the fall in crude prices.

Similarly, Shree Renuka Sugars has made big gains over the past week or so on the back of rising global sugar prices.

Stocks of Mawana Sugars and Simbhaoli Sugars, too, have surged on hopes of a better price outlook.