Tuesday, May 15, 2012

Prime Focus Shares Accumulated by Rakesh Jhunjhunwala, as RBS Sells

Naresh Malhotra, Chairman, Prime Focus Ltd

By Staff Reporter:

Prime Focus Ltd (BSE: 532748, NSE: PFOCUS) on Tuesday, 15th May 2012, witnessed a major sell of 25.50 lakh shares in BSE by The Royal Bank of Scotland and an equivalent buy by ace investor and company’s Non-Executive Director, Rakesh Jhunjhunwala.

The deals were disclosed by Bombay Stock Exchange, after trading hours on Tuesday.

Through the buy, Jhunjhunwala has acquired an additional 1.71% in this leading Indian entertainment technologies company with global operations. The noted investor has pumped in Rs. 10.72 crore on Tuesday for this additional stake.

As per the latest available Share Holding Pattern, Jhunjhunwala and wife Rekha Rakesh Jhunjhunwala held 5.93% stake, making them the largest non-promoter shareholding group.

Tuesday’s buy makes their stake around 7.64%, making them well ahead of other large investors in the counter like Top Class Capital Markets, India Infoline, Global Fincap, Citigroup Global Markets Mauritius, Amal Niranjan Parikh, Ocean Dial Asset Management, and FE Securities.

The sell by RBS amounts to 86% of the 1.99% stake held by this leading FII as per the latest SHP.

This is the second time in the last five days that RBS is selling significant stakes and Jhunjhunwala is buying. StockExplain had on Friday, 11th May, reported about a similar buy and sell by these two entities in Aptech Ltd.

Tuesday’s deal is also the third time in the last five days that this Chartered Accountant turned celebrity investor is executing identifiable buys in the Indian market. On Monday, 14th May, StockExplain had reported on Jhunjhunwala buying 1.60% stake more in Geometric Ltd.

These recent moves look like attempts to time the market near-perfectly by this ace investor. The Indian market rebounded slightly on Tuesday after continuous and deep falls for some days.

His accumulation of Prime Focus shares has come at a stage when the scrip was again going southbound, and Jhunjhunwala’s buying price of Rs. 42.05 is only around 22% away from its 52-Week Low of Rs. 33 recorded on 19th December.

On the fundamental side, Prime Focus was performing well until FY’11, but its bottomline growth had turned sluggish in the first three quarters of FY’12. 

While FY’11 saw a consolidated net profit jump of nearly 124%, bottomline growth has cooled down in the first nine months of FY’12 with net profit growing by just 2.63%. The company is yet to announce its Q4 and FY’12 numbers.

Prime Focus seems to be troubled by margin pressure as the lacklustre performance in bottomline is despite revenue jumping by nearly 36% over the previous fiscal‘s same period. 

Though the entertainment major has built up global capabilities for delivering a formidable array of high-end technology services to the entertainment industry like 2D-to-3D conversion and Visual Effects, competition is fast catching up on these largely tech-led operations, thereby putting pressure on margins.

Also troubling the company and its stock is an FCCB repayment together with its premium (as of now), amounting to Rs. 425 crore, and maturing in December 2012. The repayment will be of significant impact as even in a good year like FY’11, Prime Focus Ltd’s annual consolidated net profit was only Rs. 88.19 crore.

Apart from this, the company is sensitive to foreign exchange rate fluctuations as major revenues are happening in USA & UK.

Reflecting all these challenges, the stock had fallen from a 52-Week High of Rs. 78.40 recorded on 25th July to a 52-Week Low of Rs. 33, within 5 months. The scrip rebounded significantly with the market recovery of early 2012, but again lost ground as the challenges became more crystallized due to the rupee deprecating and FCCB deadline drawing closer.

However, a vote of confidence in the stock has recently occurred from the promoter’s side, when they opted to be allotted 1 crore more shares through a warrant conversion in mid April. The move seems to have been a method to bring in fresh funds into the company, and not for raising stakes, as some promoter entities has since then sold off some of their existing stakes.

On Tuesday, Prime Focus closed trade in BSE at Rs. 43.10, up by 2.13%.

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