Disclaimer: I am holding these stocks in my portfolio.

Over the past few months, I have been asked much about the stocks that I recommended and which did not perform in comparison to stocks that outperformed even my own estimates. Of course, every portfolio will have some underperformers. So, here’s the top 3 stocks that did not work despite the promise they showed on paper.

[1] MBL Infra

WHY I RECOMMENDED THIS STOCK?

I have actually done a full report on this here – MBL Infrastructure Stock Analysis In short, on paper the strengths of the company that come out glaringly are:

Strong Order Book – MBL Infra order book grew at an impressive CAGR of 21.59 % over the last 5 years (i.e. 2012-13 to 2016-17). For FY 2016, order book increased by 81 % to Rs. 6,823.02 Cr. from Rs. 3,770.85 Cr. s of November 2016, the Company’s order book stood at Rs. 7,950.49 Cr. MBL Infra has also recently won three projects under the hybrid annuity model from the National Highways Authority of India.

Attractive Valuation – MBL Infra grew at an impressive CAGR of 13.13 % over the last five years (i.e. 2011-12 to 2015-16). For FY 2016, income from operations increased by 19.53 % to Rs. 2,348.62 Cr. from Rs. 1,964.93 Cr. and PAT increased by 8.22 % to Rs. 88.30 Cr. from Rs. 81.59 Cr. AT THE CURRENT PRICE OF Rs. 40.15, MBL INFRA’s DIVIDEND YIELD IS 3.74%.

Here’s why the stock has been hitting constant lower circuits (Note: For the last 4 trading sessions, the stock has been hitting constant upper circuits)

Selling of Pledged Shares            

Pledged promoter holding has increased from 24.68% in Sep-2015 to 82.69% in Sep-2016. With 37.45% promoter stake in the company for the quarter ended September-16, this amounted to 30.97% of total share capital being pledged. My sense is that a lot of this shareholding was sold over the past few trading sessions which led to the sharp fall in share price.

Over the next 5 days, the new shareholding pattern of the Company will become available; it will be interesting to see the latest promoter holding at that time. Promoter’s stake in the Company is expected to fall in the December quarter.

MBL Infra stock was hitting lower circuit since 15 December 2016. In 1 month, MBL’s share price had fallen from Rs. 76.20 to Rs. 34.65, a drop of 54.52%. Currently trading at U/C – 42.15.

When you have this much promoter pledging, any fall in the stock creates a wave of selling. When the stock price falls, the lenders ask the promoters to put more shares down as collateral. When even that isn’t enough, they will just sell shares in the market to recover their money.

[2] Noida Toll Bridge

WHY I RECOMMENDED THIS STOCK?

Noida toll bridge is a road construction company with one flagship project – the Delhi Noida Toll Bridge (DND Flyway). The Company was able to reduce its debt over the past 10 years:

Noida Toll Bridge Company – DEBT OVER THE YEARS (amount in Rs. Cr.)
Year 2006 2007 2008 2009 2010
Debt 323.52 185.99 217.83 198.11 169.00
Year 2011 2012 2013 2014 2015
Debt 107.25 75.37 23.15 19.69 0.00

Dividend History – The Company has maintained an average dividend yield of 8.33 % over the last 5 financial years.

At current price (10 January, 2016), Noida Toll has a dividend yield of 22 %. NOTE: Unless something material changes for the company, it is highly unlikely that Noida Toll will be able to maintain its current dividend yield. That said, if the Company liquidates itself and returns all the money to the shareholders, then each shareholder will get ~ Rs. 28. A full 100% profit. This also is unlikely and I do expect the Company to stay in business and get newer projects awarded.

The Company faced strong anti toll protest from activists demanding toll free access on the only revenue making project of Noida Toll Bridge Company. In October, an adverse High Court judgment on the Noida Toll Bridge prevented the company from collecting toll from users. The argument given is that the Company has recovered nearly four times their total project cost.

View: By preventing the Company to collect toll revenue, the Government is actually discouraging infra companies to turn profitable before the concession period. This will create doubt for other infra companies who may not want to turn profitable on books before time.  By not charging any toll, the Company will forego 80 % of its revenue.

Also Read – Picking Value Stocks – My Best Stock Purchase Decision

[3] D –Link

WHY I RECOMMENDED THIS STOCK?

Increasing reach of internet in India both wireless and broadband will further lead to increased demand for networking products such as routers, switches and wireless products. D-Link India is better placed to tap this opportunity.

D-Link continues to be market leader in Modems, Wireless LAN, Routers and Switches space which would help the company make a vital contribution in the ongoing digitization drive. The Company maintains its leadership share in the wireless segment with 31% market share.

Also Read – D-Link India Stock Analysis

Excerpts from old post – “I remain extremely negative on telecom sector which is going through a shift from voice calling revenue to earning a higher share from data services (i.e. broadband, 3G/ 4G). Over the next few years, I expect internet enabled calls to completely replace voice calling. The fact that homes, offices and most public places provide wi-fi (internet) is likely to negatively affect telecom companies. Further, with time more and more people are going to opt for broadband/ wi-fi connections at homes and offices.

D-link also provides security and surveillance equipment including cameras and home automation equipment. I am bullish on security and surveillance related themes.”

Also Read: Are telecom Stocks Heading for a Crash

This is the only thing that I can say is truly negative for this stock – The Parent is listed on the Taiwan Stock Exchange and has lost 2/3rd of its market capitalization over the past 5 years mainly on account of high debt and extremely high competition in the international markets.