Hello, friends
Today I am going to tell you about
About three companies
Who, in the past year, have declined a lot
Now, there must be a question in your mind
That, what benefit would I have to know about those companies that have gone down?
Now, I will tell you, that as an investor
Why you should know about these companies
Firstly
A lot of people had asked me
How can we evaluate the management
Secondly
Very important
It is said that when a company goes down, we can learn a lot from it as an investor
Using which, in the coming days,
We can be saved from investing in those kind of companies
So that we don't lose our money
So, today I will tell you in this video
About those three red flags
Which, by identifying them,
You can be saved from getting into the trap of companies like these
So that you can prevent your money from going down
I, Jagdeep Singh, welcome you to the Groww channel
Let us start today's video
To start off, let me tell you about those three companies
Because of whom, their investors suffered more than a 90% loss in the past year
Which means that their share price in the past year
Went down more than 90%
The first company
DHFL
It was such a company, in which, Rakesh Jhunjhunwala made a very big investment at one point
And it's share price, at one point, used to trade at 600
And, if I talk about the time exactly one year ago,
Then the price of this share was more than 200
But, if I talk about today, then the price of this share has fallen down to become ₹20
Which means that this company gave its investors more than a 90% loss
Let us talk about the reasons
That what were the reasons because of which DHFL started to come down
So I will tell you, in short, that there were two main reasons because of which DHFL started to come down
The first one, siphoning of funds
What is this? How does this work?
Consider that I have two companies
One is a very big company, and one is very small
My small company needs money
But the banks are not giving it money, because the it doesn't have a big name in the market
Then what do the promoters do
The promoters start taking debt in the name of the big company
And start passing on the debt onto the small companies
In which they have a majority share
This is what DHFL started to do
And the first and biggest allegation on them was siphoning of funds
The second reason because of which DHFL started to come down was asset liability mismatch
If I tell you that in very simple terms
If you have some money, only for one year
And if you lend that money for ten years
Thinking that the person who gave you the money for one year
Will again give you money the next year and continue to do so
So, in this way, a big issue comes up in NBFC's of asset liability mismatch
Because of which, when the party asks them for the money
The other party is not able to give them money, because of which, their entire business model becomes ruined
And this is what happened in the case of DHFL
Now let us talk about the second company
Whose name is Reliance Communications
If I talk about the situation exactly one year ago
Then this company's share price was ₹15
And if we talk about a few years ago
Then the company's share price was above ₹200-₹300
But there were a lot of reasons in the company
Because of which they company started to go down
And just in the past year
If anyone would have invested money in the company
Then their money would have gone down more than 90%
Which means that their money would almost be over
So, the first reason
Which, in one way, finished Reliance Communications
Was their debt level
And apart from this as well, a lot of issues arose in the business Reliance Communications
For example, more companies came up as their competition
And in the overall sector, as well, there was a big issue about pricing
Because of which there was a pricing war in India
And a big benefit of this was enjoyed by the consumers of India
And maybe a big damage happened to the telecom companies
And among the telecom companies, one of them was Reliance Communications
Apart from this, there was another important issue in Reliance Communications
Which was that the management did not manage the company very well
Because, at one time, Reliance Communication was considered a very good company in the telecom sector
But it was not managed properly
The company started to decline
And today the company's share price has gone below ₹1
The third company that has declined a lot in the past year
Is called Jet Airways
If I go back to exactly one year ago,
Then Jet Airway's share price was almost around ₹300
And if I talk about today,
Then today its share price is around ₹25
Which means that if you would've invested money, then today you would've been in a big loss
So, what was the reason behind this?
The first reason was, piling of debt
That Jet Airways had a lot of debt
And they did not pay attention to their debt at the right time
They did not try to reduce their debt
Because of which their interest cost kept on increasing a lot
And their loss kept on increasing as well
And because of which, they were unable to recover themselves
The second important reason was operational inefficiency
If I explain this to you in detail
So, Jet Airways did not streamline their operations well, as per the competition
Because in their competition, a lot of companies has come up in India
Who did a lot of cost cutting
Started selling the same flights at very cheap costs
And until Jet Airways, did not change their operations in that standard
Then they would not be able to sell the same flight at the same prices
Because of which, customers moved on from this airlines to other airlines
Because of that, Jet Airways started to decline
And along with their share price, their business also started to go down
Now I will discuss about those three red flags
Which, by identifying them
You can avoid those companies
Which in the coming time can give you a lot of negative returns
If I talk about the first red flag
Which was common in all three companies
It was management issues
All three companies had big issues in management
In some company the director resigned
In some company the management was unable to streamline their operations well at the right time
And in some case, there were fraud allegations on the management
How right or wrong they are, we will find out only in the coming time
But as an investor, if you invest in some company
Then you should analyze the management
A lot of people asked us how we can analyze a company's management
Let us discuss about that as well today
The first point
Using which you can identify how the company's management is
This point can be a little subjective and is a little quantitative
But you can decide how advantageous it can be for you
The first and most important point
Using which you can guess how the company's management is
For that you have to read the company's annual report
By looking at the company's annual report
You can see how much annual income does the company's management get
And if I look at the past five years
How much money someone in a management position got
And in the next year, the company's profit increased by 10%
But I talk about the management's income, if it has increased by 30-40% not 10%
Then there can be some issue here
The second red flag is debt
Maybe I have spoken about this many times before
I never say that taking debt is a wrong thing
But at the wrong time
The wrong amount of debt, is a very bad thing
Because if a company takes too much debt
When the company doesn't have much for expansion
And it is not performing well operationally
So in that case, the company falls into a debt trap
The company would have to take more debt to run their operations
This process would make a lot of debt amount
And at one point the company will not be able to get out of that debt trap
And the result of that would be that the company would have to close its operations
And liquidate itself to be able to repay the debt
And in that case, the biggest loss would be for retail investors like you and I
If I talk about the third red flag, which I believe to be very effective and it comes in my use a lot as well
Is to see how much percentage of the company's share does the promoter have
And we can find this out if we talk about the past four or five quarters
And if the promoter's share in the company continues to decrease in the past four or five quarters
And that percentage is very high
It always leads me to believe that the promoter's confidence in the company is decreasing
And if the promoter's confidence is decreasing
Then as an investor, how can I keep confidence in the company?
There is a very important point here
Because in the case of some companies, due to regulatory norms,
Promoter's have to reduce their share in some companies
So, in that case you should not consider this a red flag
But there is a requirement there that promoters have to follow
And this happens in the case of very big companies as well
But if you analyze this in the right way
And look at it in the longer horizon
That its reducing by a big percentage
Then it can be a red flag
But this is very subjective
You should do a full research
Only then you should decide how you interpret this
So, these were those three flags which I think if you identify
Then you can escape from being trapped by a bad company
But it is possible that I missed a lot of red flags
And I was unable to tell you
Which you know about
So comment and let me and our viewers know
And discuss among yourselves
Friends, we post 3-4 videos every week on this channel for educational purposes
Which has purely one purpose, education
We don't give the recommendation of buying or selling in any video
And nor do we encourage you to buy or sell a stock on our recommendation
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So that they can also learn
What those red flags are using which we can escape being trapped in a bad company
Happy investing!