What's driving the renewed frenzy in Money Matters shares?

Money Matters BSE | NSE 31/05/12 Are Mutual Funds betting on Money Matters?

Moneycontrol Bureau

A 50% jump in its stock price in less than two weeks had Money Matters Financial Services shooting off this letter to the stock exchanges.

"There are no events / information / announcements (including pending announcement) that have a bearing on the operation / performance of the Company and which in our opinion are price sensitive and can have any bearing on the price/volume behavior in the scrip."

At Friday's price of around Rs 126, the stock is a long way off from its record high of Rs 712 touched last year in November, just before MD & CEO Rajesh Sharma was arrested by the CBI for allegedly bribing bank officials to arrange loans for Money Matters' clients.

So what could be the reason for the sudden interest in the stock?

Most likely a combination of the cash in the company's books and the low liquidity in the stock.

The company's current market cap is around Rs 435 crore, and its latest balance sheet shows it having around Rs 340 crore in cash and cash equivalents.

(Only Rs 16 lakh of it is in the CBI's possession). This kitty includes money raised through qualified institutional placement in October last year. On an equity base of around 3.48 crore shares, the cash in hand works out to roughly Rs 100 per share.

And the stock is as illiquid as the company's bank accounts are liquid.

Promoters own roughly 60% in the company, having raised their stake by 4 percentage points in the June quarter when the stock price had fallen below Rs 50. Institutional investors own 14%, of which the lion's share is held by foreign institutional investors Wellington Asset Management and Morgan Stanley Mauritius. Both investors had bought the stock at Rs 625 per share in the QIP last year.

Unlikely that they would want to sell their holdings at such a steep loss. Another 22% is held by corporate bodies, and there is no saying on whose side they actually are. So where are the shares available for trading? Little wonder that the stock hit the upper end of the 20% intra-day limit a few days back on trading volumes of less than 1.5 lakh shares on the NSE.

And while technical factors may favour the stock, the company's prospects don't appear too bright at the moment. Reputation counts for a lot in the advisory business. And that certainly is in tatters at the moment, even if the charges of bribery have yet to be proved. So it is going to be a long road to recovery for Money Matters.

This is what Rajesh Sharma said in his letter to shareholders in the latest balance sheet.

"As a matter of strategy we will be focusing on lending business to begin with and this business itself will offer us with opportunities to rebuild our advisory business. We will not hesitate to hire best talent and provide a professional

atmosphere and free hand, as has been the culture at Money Matters, where talented individuals with entrepreneurial bent of mind can do wonders."

Money Matters latest quarterly wage bill has nearly halved compared to the same period last year, reflecting the exodus of employees following the probe against the company.

Sharma's message further says:

"I am glad to inform that out of the QIP proceeds, we have as of now extended loans to 4 reputed corporates. I would also like to assure all the stakeholders that the funds raised from QIP have been utilized in a very judicious manner."

Are institutional investors listening?

santosh.nair@network18online.com