ICICIdirect_Pledgedshares_November2011

8/3/2019 ICICIdirect_Pledgedshares_November2011

1/4CICI Securities Ltd. | Retail Equity Research

November 24, 2011

edged Shares

Promoters resort to various modes of raising finance to meet their business and personal needs. Loan against shares is

one such method of raising finance. Under this method, promoters pledge the shares held by them with lenders to get the

required financing. These loans typically have tenure of one to three years and carry a margin requirement of two or three

times. Simply put, it means that the value of the promoters shares pledged is two to three times the amount of loan.

The method appears beneficial for promoters as well as lenders. The promoters get access to quick short-term financing

whereas lenders charge premium rates for this short-term financing arrangement and also have about twice the value of

the loan as pledge of shares with a right to sell the shares if the promoter defaults in repayment or if the value of pledged

securities goes down.

The risks associated with pledging of shares are quite significant particularly from the promoters perspective. In case of

default, a lender can sell the shares in the open market to recover their dues, which could result in a fall in stock price and

erosion of market capitalisation. Also, promoters run the risk of losing management control if a significant portion of their

holding is pledged.

The term pledging of shares is looked upon with a needle of suspicion by investors. In a scenario of rising stock prices,

there is no concern but if the price of the shares declines to a certain level, the promoters are required to make somepayment or pledge more shares. If the promoter defaults or is unable to provide further shares as margin, then the lender

has a right to sell the shares in the open market. Usually the quantity of shares sold by lenders is large resulting in an

erosion of stock price. Companies with a high proportion of pledged promoter holding are susceptible to such erosion in

stock prices. Investors tend to be wary of investing in such companies.

In the last 10 quarters, from the data available on pledged shares, we have been able to decipher that promoters have

utilised pledging of shares to get loans on a regular basis. On an average, 8-9% of the promoters holding has been

pledged during June 2009-September 2011. In the quarter ended September 2011, the percentage of promoter holding

pledged has increased from 9.1% in June 2011 to 9.5%, whereas the percentage of total equity pledged has increased

from 5.0% in June 2011 to 5.1% in September 2011. From June 2009 to December 2010, the Sensex was on a constant up

move due to which pledging would not have caused alarm bells to ring as the value of shares would not have seen much

of erosion in value. However, recently the markets have been weak. The Sensex has corrected by ~ 20% in the last three

quarters, resulting in an erosion of market capitalisation of stocks and, hence, the value of shares pledged for securing

loans. In such a scenario, companies that have taken loans against shares have to provide further margin in cash or pledge

more securities to maintain the margin requirement. The companies that default may face the situation of selling of

pledged shares by lenders resulting in a decline in stock prices and reduction in promoter holding.

Exhibit 1: Aggregate pledged shares (%)

8.8 8.4 8.3 9.5 9.5 9.5 9.6 9.5 9.1 9.5

5.1

5.05.15.1

5.05.15.1

4.54.64.7

17465 17528 17701

2006919445

1645417127

14494

18846

20509

0

2

4

6

8

10

12

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

%

6000

8000

10000

12000

14000

16000

18000

20000

22000

percentage of prom oter holding pledged percentage of total equity pledged S ens ex (RHS )

Source: Capitaline, ICICIdirect.com Research



November 24, 2011

edged Shares

We have analysed the data of companies that have disclosed the number of shares pledged by them for Q3CY11 and

Q2CY11. We have filtered companies that have a minimum of promoter holding pledged at 50% in Q2CY11 and have

either increased or decreased the percentage of promoter equity pledged. The sentiment can turn positive/negative for

the stocks according to their actions related to pledging.

Exhibit 2: Companies with increase in proportion of pledged shares

Co_Name

Percentage

(Sept 2011)

Percentage

pledged

(Sept 2011)

Percentage

pledged

(June 2011)

QoQ

increase

(%) in

Promoter

holding

pledged 3 month 6 month 1 year

No of equity

shares

(Sept 2011)

CMP (|)

(22/11/2011)

Raj Oil Mills 34.4 93.1 58.9 58.0 -45.3 -64.9 -79.3 3.6 11.1

JSL Stain. 39.6 87.7 57.5 52.4 -19.0 -15.8 -33.5 18.8 73.1

ICSA (India) 21.5 98.5 65.6 50.1 -35.5 -62.1 -70.3 4.8 42.4

Atlanta 73.7 77.8 52.0 49.6 -16.0 -16.8 -34.1 8.2 59.1

SpiceJet 38.6 86.2 58.1 48.3 -12.1 -47.9 -74.7 40.6 21.4

Cinemax India 68.6 82.0 57.4 43.0 -1.4 -17.7 -46.4 2.8 30.9

Mangalore Chem. 30.4 88.7 63.7 39.1 9.6 8.3 -18.2 11.9 32.6

Omaxe 89.1 81.6 67.8 20.3 9.1 4.0 -5.2 17.4 136.2

Surya Pharma. 38.1 73.2 61.3 19.5 -26.2 -42.8 -60.7 20.3 12.0

Paramount Comm. 34.7 100.0 86.4 15.7 -9.7 -33.8 -63.2 9.3 2.6

Spentex Inds. 52.6 100.0 87.0 14.9 -26.6 -58.7 -71.7 8.3 6.8

C & C Constrn. 64.8 69.7 63.9 9.2 -12.8 -11.0 -58.5 2.3 96.4

Dharamsi Morarji 47.8 96.5 89.1 8.4 0.3 -21.6 -40.8 2.1 10.5

Karur KCP Pack. 64.4 74.9 69.4 8.0 -20.6 -37.3 -61.4 1.1 23.8

Surya Chak.Pow. 26.7 94.6 87.9 7.6 -47.3 -63.1 -78.0 15.0 4.4

Lokesh Mach. 54.7 78.3 73.0 7.3 -1.5 -5.5 -33.1 1.2 39.8

JP Power Ven. 76.5 63.6 59.5 7.0 -5.8 -27.5 -39.8 262.5 34.8

Suzlon Energy 54.8 69.4 65.0 6.8 -43.3 -56.3 -57.6 177.7 22.2

Kemrock Inds. 28.9 65.6 61.7 6.2 -2.4 -0.5 -26.6 1.7 503.6

Guj NRE Coke 45.9 88.3 83.5 5.8 -34.6 -62.6 -66.3 52.5 18.7

Gemini Comm. 40.8 69.4 65.7 5.7 15.6 7.6 -21.5 10.7 22.6

Unitech 48.6 72.0 68.1 5.6 -16.5 -34.3 -68.0 261.6 22.3

Wire & Wireless 63.3 52.8 50.0 5.6 3.8 -21.5 -49.4 45.3 6.9

Orchid Chemicals 29.8 77.1 73.2 5.4 -21.2 -44.4 -48.7 7.0 157.5

Tricom India 13.6 98.0 93.1 5.2 -13.8 -31.9 -35.5 6.6 11.0

Dunlop India 73.7 91.9 88.0 4.5 -39.1 -78.4 -84.6 7.2 11.5

Falcon Tyres 83.5 97.4 94.0 3.7 -36.2 -70.5 -79.5 3.4 29.0

Aftek 14.1 56.0 54.2 3.3 -13.6 -21.6 -41.2 9.4 10.0

Ansal Properties 46.5 97.7 95.3 2.5 -0.9 -33.1 -64.9 15.7 27.5

United Spirits 28.0 89.6 87.7 2.2 -21.5 -27.3 -45.4 13.1 759.8

Alok Inds. 30.0 60.2 59.0 2.1 2.0 -28.4 -41.3 78.8 17.8

Era Infra Engg. 58.9 80.9 79.3 2.0 -5.5 -18.3 -34.4 18.2 148.8

Stone India 31.5 88.1 86.5 1.9 -28.0 -27.7 -59.7 0.8 25.2

Promoter Holding Stock return




November 24, 2011

edged Shares

Exhibit 3: Companies with decrease in proportion of pledged shares

Co_Name

Percentage

(Sept 2011)

Percentage

pledged

(Sept 2011)

Percentage

pledged

(June 2011)

QoQ

decrease(%) in

Promoter

holding

pledged 3 month 6 month 1 year

No of equity

shares

(Sept 2011)

CMP (|)

(22/11/2011)

Orbit Corpn. 47.5 54.6 77.2 -29.4 -26.2 -42.5 -73.1 11.4 26.7

BGIL Films & Tec 26.9 49.3 67.1 -26.6 1.9 43.7 -63.6 0.6 5.3

Balasore Alloys 46.6 48.8 63.4 -23.1 -13.0 -34.9 -55.2 6.4 14.8

Nissan Copper 31.7 53.7 69.6 -22.9 -16.4 -34.6 -52.7 62.9 17.8

Entegra 70.0 56.4 69.0 -18.2 -5.5 -16.4 -45.4 18.2 15.8

Crew B.O.S.Prod. 34.3 68.4 83.3 -17.9 -21.3 -71.4 -83.9 1.4 29.0

Parsvnath Devl. 70.2 71.2 86.5 -17.6 -1.6 6.1 -27.4 43.5 44.4

K S Oils 9.1 70.3 83.4 -15.8 -24.3 -74.6 -86.4 42.5 7.2

NCL Inds. 47.2 59.4 68.4 -13.1 0.0 -8.4 5.5 3.5 34.3

Shiva Cement 35.2 55.5 63.9 -13.1 0.9 -0.2 -28.8 18.2 5.6

Murli Industries 30.7 45.7 52.3 -12.7 -36.9 -44.7 -83.1 7.2 15.7

Vipul Ltd 59.1 65.0 72.9 -10.8 -3.5 -25.1 -53.8 12.0 9.3

Krebs Biochem 50.5 45.8 50.7 -9.7 -1.4 -10.0 -28.9 1.0 28.0

India Cements 25.8 67.6 73.2 -7.7 -0.4 -17.8 -38.9 30.7 69.7

Everonn Educat. 42.3 56.8 60.7 -6.4 -29.4 -46.0 -55.5 1.9 306.3

Sakthi Sugars 33.9 80.6 85.7 -5.9 -17.0 -33.8 -58.4 3.7 22.4

Bodal Chemicals 74.3 77.5 82.0 -5.5 -46.3 -41.9 -59.4 10.0 14.7

Ankur Drugs 18.2 72.6 76.8 -5.5 -16.2 -49.3 -82.3 1.9 19.5

Bombay Rayon 34.2 47.9 50.7 -5.4 -0.5 -3.8 27.5 13.5 276.5

Bartronics India 27.4 63.6 66.3 -4.1 -16.3 -33.1 -58.8 3.4 40.8

Hatsun AgroProd. 69.1 49.5 51.6 -4.1 10.4 -7.4 77.8 3.6 90.7

Lyka Labs 21.3 91.5 95.2 -3.8 -27.1 -45.7 -64.3 2.2 11.2

Polar Inds. 37.0 96.3 100.0 -3.7 -23.3 -27.9 -41.8 2.1 3.1

Nandan Exim 55.9 73.1 75.2 -2.8 -22.9 -27.6 -26.5 45.5 1.9

Pipavav Defence 45.0 97.3 99.6 -2.3 -6.4 -30.9 -31.8 66.6 58.2

IMP Powers 49.8 64.4 65.7 -2.0 -38.4 -36.9 -35.7 0.8 53.6

Glodyne Techno. 56.4 72.1 73.4 -1.7 -12.5 -32.1 -64.4 4.4 246.1

Strides Arcolab 28.4 62.2 63.2 -1.5 45.7 10.6 -3.7 5.8 422.2

Panyam Cement 51.3 98.5 100.0 -1.5 -9.6 -31.8 -53.7 1.6 43.6

Videocon Inds. 68.3 62.9 63.7 -1.4 -4.6 -8.9 -22.4 30.3 169.6

Viceroy Hotels 32.2 83.1 84.0 -1.2 -9.9 -23.7 -47.6 4.2 23.6

Promoter Holding Stock return



4/4

Page 4

Pankaj Pandey Head Research [email protected]

ICICIdirect.com Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,

Road No. 7, MIDC

Andheri (East)

Mumbai 400 [email protected]

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ICICIdirect_Pledgedshares_November2011