What's in a name? Bears don't forget troubled stocks

Name-change tactic mostly fails for listed companies if the stock market is any indicator.

Close to 75 companies listed on BSE changed their names in 2018 and stocks of almost 70% of them have underperformed benchmark index S&P BSE Sensex since they changed their identity, shows a DNA Money analysis.

Studying the share performance since the effective date of name change shows that most of such stocks have fallen. For instance, Amulya Leasing & Finance changed its name to Apollo Pipes on January 3. The stock was down nearly 40% on December 7 while the Sensex was up 5.5%.

Shares of Chothani Foods (erstwhile Ashok Masala Mart), Five Core Exim (formerly Aurum Soft Systems), Aditri Industries (erstwhile Anshu's Clothing), Brightcom Group (previously Lycos Internet), Prism Johnson (Prism Cement) and BCL Industries (erstwhile BCL Industries and Infrastructures) have fallen anywhere from 25 to 35% since change of name till December 7.

"In some name-change stocks, graded surveillance measures (GSM) have also been made effective. This happens when the Sebi (Securities and Exchange Board of India) and stock bourses identify securities for enhanced monitoring and surveillance actions. This is done in order to enhance market integrity and safeguard the interest of investors. Operators often snag gullible investors in such stocks," says the compliance officer of a broker.

Some of the companies that fall in this name-change club belong to illiquid stocks and are very small. So, investors should avoid trading in them and exercise extreme caution while investing in them, say experts.

There could be various reasons why companies change names. "This may be done to reflect a focus on a new line of business, change in ownership, to avoid the stigma of some historical problems or to just to have a new brand identity. A lot of times, companies change their names when some theme/opportunity in their old name is not popular anymore. People understand a name change is only cosmetic in nature. Fundamentals don't change. If the market is not happy with them for some reason, traders and investors don't really forget. Hence, negative trends may continue even after the name change," says a senior fund manager with a mutual fund.

In the last two to three months, almost two dozen companies, including quite a few prominent ones, have changed their names. However, the change in name has not translated to gains.

Rural Electrification Corporation became REC on October 25, but its stock was down over 3% on December 7. Emami Infrastructure became Emami Realty but its stock has dropped 9% since November 15. Idea Cellular became Vodafone India but the company is in an extremely competitive sector. The stock has tanked 26% since the name-change on September 19, much worse than Sensex's 4.4% drop in the same period.

The drop in share prices has been stark, 50-60%, in the case of Himalaya Food International, Camlin Fine Sciences and Infibeam Avenues. In the case of Infibeam, the stock was caught in a warp of panic selling due to the circulation of unsubstantiated rumours.

There are a handful of 'name-change' club companies that have managed to beat the Sensex. For instance, Inspirisys Solutions (erstwhile Accel Frontline) shares were up nearly 13% on December 7. Shares of thinly and irregularly traded Mena Mani Industries (erstwhile Anar Industries) have jumped from Rs 14 to nearly Rs 20 since its name was changed in late July this year. Companies, where name-change has coincided with a sharp rise in stock price, include Paos Industries (earlier Raj Agro Mills), Oriental Aromatics (earlier Camphor & Allied Products), and Apollo Tricoat Tubes (earlier Best Steel Logistics).

OLD WINE, NEW BOTTLE

• People understand a name change is only cosmetic in nature. Fundamentals don't change
   
• In some name-change stocks, graded surveillance measures (GSM) have also been made effective