This one is for Blogreader Salafi from Chennai ~ Goldstone Infratech @ Rs 10 ~ Open Offer at Rs 23 or at Rs 43 ? Supreme Court will decide ~ but it seems a Win-Win either way.

Background of the Open Offer

On November 4,2008 Saffron Capital Advisors of Mumbai ,as Manager to the Offer and on behalf of the Board of Directors of Goldstone Exports Ltd (GEL) the Acquirer (now Trinity Infraventures),issued  a Public Announcement in the Newspapers that the Acquirer makes an Open Offer for 20% of the Equity of Listed Goldstone Infratech Ltd (GIL) (erstwhile GoldstoneTeleservices) at the Price of Rs 23 per share

On December 16,2008 SEBI advices the Acquirer to use October 29,2008 as the Reference Date to determine the Offer Price

It was on this Date when Shares were allotted to GEL on conversion of the Share Warrants they held ~ The Offer Price arrived at  was Rs 43

GEL had used the Reference Date of January 25,2007 when the Board of GIL had decided to issue 1.5 cr Share Warrants to GEL which could be converted into Shares at Rs 22 within 16 months of the allotment ~ GEL held 9.51% of GIL’s Equity of 2.1 cr shares of FV Rs 4  at the time and the conversion would take their stake to 47% ~ The Conversion took place on October 29,2008 when GIL issued 1.5 cr shares to GEL

GEL disputed SEBI and appealed to SAT which admitted the Appeal on February 16,2009 and later upheld SEBI Position ~ GEL then took the matter to the Apex Court,Supreme Court in 2009 (Civil Appeal 7666 of 2009)

On hearing Counsel on August 13,2012  the Court ordered to put it up for Final Disposal on October 10,2012 ~ It has been listed but never comes up for Hearing ~ the next listing date is July 9,2013  ~ so hearing is actually overdue after 16 ordered listing till date  in 2009 (1),2010(2),2011(5) and 2012(8)

An Investment Opportunity to consider in such a situation

GIL is available at Rs 10 ,near 52 Week Low of Rs 9 ~ 52 Week High was in October 2012 at Rs 17.60  on BSE ~ It is also listed on NSE

Market Cap is Rs 36 Crs ~The Volumes are not to heavy ~ Two Week average is below 5000 on BSE and yesterday it was under 1000

Current Shareholding of GIL as at March 31,2013 ~ Equity is Rs 14.43 Crs of FV Rs 4 comprising 36080737 shares

The Open Offer will have to be made to Non Promoter Shareholders to pick up 20% of the Equity

Thus 20% of Equity works out to an Open Offer for 7216147 shares => is @ 40.7% of the Non Promoter Shareholding of 17733222 Shares

This would mean that for every 10 shares held ,the Open Offer Success Ratio should be 4 Shares

Now lets assume you invest in 10 shares of GIL at current Price of  Rs 10 => Investment is Rs 100

This will how your Returns will pan out if  Supreme Court decided in favour of GEL or SEBI

If you sell the remaining 6 Shares at expected Post Open Offer dropped share Price of  Rs 5 (see reasoning below )you’ll get Rs 30 ~ so if GEL wins then the returns on your Investment of Rs 100 would be  Rs 22 or 22% (Inflows Rs 92 + Rs 30) and in case SEBI wins as is expected then the Returns are quite handsome at 102% (Inflows Rs 172 + Rs 30)

It’s a Win-Win in either case

 However Risks You should Consider

• Holding Period ~ It could stretch from a few Months to  two to three Years as the Supreme Court has a heavy backlog even though this Case was filed in 2009 and now up for final disposal at the next hearing ~ it keeps coming up in the cause list but because of the backlog it simply never comes up for hearing
• GEL may not Honour the Open Offer ~ This may appear as a Real Risk as the payout is Rs 31.03 Crs at Rs 43 in case SEBI wins  and Rs 16.6 crs at Rs 23  in case GEL wins ~ have not considered  any Interest from 2009 ~ However it has an Escrow put up pending disposal of the case and the Goldstone Group,even in a declining profitability scenario, may have more to loose if they do not honour the Open Offer committment
• Post Open Offer the GIL Share Price may nosedive sharply from the current Rs 10 ~ Let’s figure out how much could it be  by looking at the Earnings and Book  ~ These are the Financials and Relative Valuations

Financials & Valuations (Rs Crs unless specified)

I have assumed that GIL will maintain dividend of 5% or Rs 0.20 per share even in FY 13 despite declining Profits

Potential Share Price Decline Post Open Offer

GIL’s Share Price is currently at Rs 10 to reflect some buoyancy in this Open Offer Pricing Dispute Situation pending with the Supreme Court  ~ My sense is that Post Open Offer the Share Price of  GIL will drop sharply from current Rs 10 to reflect declining profits ~ However if it maintains Dividend and because Book yet remains at Rs 20+ the Share Price may not drop to Rs 2.50 which would reflect Earnings Multiples of 8 on an EPS of Rs 0.36 for FY 13 and may remain above Face Value of Rs 4 and therefore can assume a post open offer share price of Rs 5

GIL  continues to face many Operating Challenges ~ it has invested Rs 6.01 crs in a wholly owned subsidiary TF  SolarPower Pvt Ltd which has incurred capex of Rs 9 crs till date but work has been put on hold since 2012  because of falling solar module prices and a troubled solar energy sector ~ In it’s Business of Polymer Insulators ,GIL is facing competition from cheaper imports  ~ Power Sector Woes continue and despite huge Potential for the Insulator Business because of the ambitious 12th year plan for Power Generation,it looks unlikely GIL will see any significant uptick in business in the near term ~ It also has Long Term Debt of Rs 30+ Crs to contend with ~Interestingly the Debt is also secured by Equitable Mortgage of Immovable Property and Corporate Guarantee of the Acquirer in the Open Offer and Chief Promoter of GIL  ,namely GEL  now called Trinity Infraventures Ltd

However what caught my eye and  intrigued me is that despite Profits in FY 12 their Consolidated Networth dropped from Rs 99.27 Crs+ to Rs 73.12 Crs + and the reason is that they have written off as Impaired Obsolete Machinery of a huge Rs 27.22 crs ! because they have discontinued Jointed Telecom Kits and BPO Business ! ~ they say nothing was recoverable !~I checked their Fixed Assets Schedule and even over Rs 6 crs of Computers have been knocked off ~ suspicious if you connect this with Judgement Day approaching in the SC where if Goldstone Exports,now Trinity Infraventure,loses they will have to shell out over Rs 30 Crs to pick up 20% Equity of GIL

And therefore I don’t think Goldstone will  put their hands up ~ they will honour the Open Offer whether they win or SEBI does

On April 1,2013 GIL announced recently that their Company Secretary and Compliance Officer , Srikanth Adalat ,had resigned as on March 30,2013

Adalat goes even before the Apex Adalat gives a verdict !

Yet what’s the Risk in GIL at Rs 10 !

Cheers !

P S : Salafi,if you make some monies on this ,do be kind enough to remember me ~ and email me privately ~ my email is on this blog ~ and I shall tell you where to send my Fees !

Nearly Five Years ago on July 21,2008 I had covered Nirma refusing to honour their committment of an Open Offer to Shree Rama Multi-tech Shareholders and that the matter was before the Supreme Court

Nirma disallowed to withdraw offer for Shree Rama Multi-tech

Monday, July 21st, 2008

I have posted this Update on the above blog post but for easier access and viewing have repeated it as a new blogpost now

Latest Update Sunday,May 12,2013 

After years  finally Supreme Court upheld SAT and Nirma will have to make the Open Offer to Shree Rama Multi-tech Shareholders to pick up 20% Equity at Rs 18.60

http://www.business-standard.com/article/companies/sc-dismisses-nirma-plea-in-shree-rama-open-offer-113050900201_1.html

Shree Rama consequently hit 20% upper circuit at Rs 5.74 on Thursday,May 9,2013 and another 10% on Friday,May 10,2013 at Rs 7.56 to give a market cap of Rs 44 crs

Nirma of course has delisted at Rs 260 in March 2012

However Dont get too excited and expect Shree Ram Multi-Tech to rise to Rs 18+ as only 20% of the Equity of Rs 31.76 crs (FV Rs 5) is the Offer Burden and so all shares will not be accepted  and post offer scenario the Share Price may drop below par of Rs 5 again

Shree Rama Multi-tech boasts of top Clientele but continues to make Operating Losses though in FY 13 it has recorded a Profit of over Rs 8 crs for the 9mFY 13  because of  Exceptional Item that relates to a settlement with a lender of less than 1/3 the amount (see below)

The accumulated Loss remains huge and Networth remains negative at @ Rs 90 crs with Long term Borrowings yet above Rs 200 crs

The company has filed fresh scheme of compromise and arrangement u/s 391 of The Companies Act, 1956 vide petition no.401 of 2008 in Gujarat High Court and the same is pending before the Hon’ble High Court

During the first quarter ended June 30,2012 in FY 13 the company has entered into settlement with one of the lenders and principle amount of Loans and Borrowing of Rs 72.63 crs was settled for Rs 22.57 crs. The resultant gains were credited to the P & L A/c by Rs 24.39 crores and to Capital Reserves by Rs 25.66 crs as per the end use of the Loans

Will be interesting to see if Shree Rama Multi-tech can be reborn again after  Scheme of Compromise and Arrangement is passed by the Court and further settlements take place with lenders to bring down Debt significantly ~ After all the Company  did notch Sales of Rs 72 crs in FY 12 and Rs 64 crs for the 9m FY 13

Upfront Disclaimer : Neither My Family nor I have ever owned Khoday India Shares and don’t know of any who have or do, except perhaps RR ,a blog reader and pretty well informed and savvy investor too,  who conveyed in a private email his dismay and disgust on what Khoday is upto ~ he may be justified and has prompted me to go deeper and post this Blog as a result ~ it is not intended to offend anybody or entity and there is no bias or vested interest involved  and should therefore be read as an attempt to put forth the facts and arguments and perceptions so that Investors understand the Risks of Investing in such Companies like Khoday India   

________________________________________________________________________________

Khoday @ Rs 66 ~ Delisting by Serving an over diluted Peg at Rs 75 to Shareholders !?

Minority Shareholders believe that the Value is much more because of Real Estate Interests that are not being disclosed or have been moved away from the company at low values !?

Overview

Khoday was set up in 1965 as a Private Distillery by the Khoday Family .It went Public and got listed in 1986 on BSE,Bangalore and Madras Stock Exchanges.In 1992 the name was changed to the current name of Khoday India Ltd

It’s Registered and Operating Office is in Bangalore.K L Ramachandra is the Chairman and  K L Srihari is the current Vice Chairman & Managing Director .Both are Third Generation Khodays and their Sons & Fourth Generation are on the  Board too ~ Fifth GenNext is also being Groomed

Interestingly,apart from Nominal Sitting Fees ,no Khoday Family Executive or Non Executive Director has taken any Remuneration in FY 12 and none has been provided ! ~Come On ! they cannot be working for free !

It’s not paid any Dividend for the past five Years and performances have been pretty flat ~ Ironically Dividend too died  from the Financial Year  2007 when  the Khoday Head L Narayanasa Khoday too passed away ~In fact there were Losses in three consecutive FYs 08-11 and even in the 9m FY 13

It owns the well known Premium Brands of PeterScot and Red Knight in the Indian Made Foreign Liquor (IMFL) Whisky Segment .In FY 12 Liquor Sales were Rs 292 crs and yet Khoday made a Loss in this Segment !

However it’s Forays into Real Estate Development had perked up substantial Interest in the Company and had even raced the Share Price to a High of Rs 425 in August 2007 from a low of just Rs 37 in January of the same year !

There has been some infighting in the Khoday Family with  an estranged daughter in law and her two children claiming  their share in the Family Property ~ Court has made some observations

Annual Report FY 12 conceals more than it reveals 

The FY 12 Annual Reports conceals more than it reveals ~ there is a certain arrogance once senses in the Promoter Group who seem they could not care less for the way the Company is performing or Corporate Governance Issues and their clear violations of Non Disclosures and lack of Transparency in the Preparation and Presentation of the Accounts

This is a great disservice especially to the nearly 16000 Minority Shareholders and sadly the Regulator,the Exchanges and even the Company Law Board and Ministry of Corporate Affairs are turning a Blind Eye  ~ The Auditors,M/s Rangaraju & Associates have given a Clean Audit Report

Some of the Frowns that appear on Inadequate Disclosures or Explanations are as below

1. Availing of Exemption granted under General Circular 02/2011 of February 8,2011 issued by the Ministry of Corporate Affairs under Section 212 of the Companies Act 1956 and not attaching  the Annual Report  of wholly Owned Subsidiary Khoday Properties ~ However the Investment is a bare Rs One Lakh as Equity in this Company and truncated balance sheet disclosure show insignificant assets and liabilities
2. No Explanation as to the Nature of the Contract Segment Income of Rs 40.69 crs and the nearly all at Rs 39.94 crs Profit from this except mention that it was received from a Firm for making over the Risks and Rewards of a Project !
3. No Information on status of the Rs 61.48 Crs  Investment for a 75% partnership Interest in Laxmi Estates ~ the remaining 25% is held equally by four  Family HUFs ~ Such an Investment begs for it to be included in the Consolidation Accounts but Company apparently feels that only Investments of 51% +  in Companies needs to include such Companies in the Consolidation while Partnerships are exempt ~ if this is a legal loophole it needs to be plugged immediately   
4. No Explanation for the Write Off of Obsolete Raw Material of Rs 2.57 crs and Irrecoverable Advances of Rs 1.91 crs
5. No details of the winding up petition filed against the company and pending in the Karnataka High Court except mention that the company is of the opinion that the dues claimed by the petitioner are time barred and hence the petition is not maintainable
6. Legal & Professional Charges are running high every year ~ in FY 12 they were Rs 4.28 crs against Rs 3.98 crs in FY 11 ~ Why?

Share Capital

The Equity was Rs 14.51 crs of FV Rs 10  till FY 2004 after which Promoter Group was allotted shares at par of Rs 23.08 crs when they merged unlisted private company Khodayss Systems Ltd ~ The Equity went up to the current Rs 37.59 crs

This is the Current Shareholding of the Equity of Rs 37.59 crs of FV Rs 10

Controversial Scheme of  Arrangement between Company & Non Promoter Shareholders just  announced 

On April 26,2013  in the Evening the BSE put up this Notice without putting up any Scheme Documents as it  yet had to receive them

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=57c30dee-05db-496b-8859-57973191c47b

“Khoday India Ltd has informed BSE that the Audit Committee of the Board of Directors of the Company at its meeting held on April 24, 2013, has recommended a Scheme of Arrangement between the Company and its Shareholders under Section 391 to 393 read with Sections 100 to 104 of the Companies Act, 1956″

On May 2,2013,Company send this Covering Letter  http://www.khodayindia.com/pdf/letter_to_bse.pdf  along with a CD to BSE for the attention of  Manager,Mr Jayesh Ashtekar . The CD held the Draft Scheme of Arrangement along with the Annexures F 1 & F 2 referred in Clause 4.3 in the Scheme. The Annexures are crucial as they are the Valuation Report dated March 28,2013 by Independent CA,M/s N C Rajgopalan & Co of Chennai which has valued Khoday Share at Rs 31.39 and a Fairness Opinion dated April 17,2013 by SEBI Registered Category 1 Merchant Banker,Corporate Professionals Capital Pvt Ltd,New Delhi

It’s over a week till date and BSE has not put up this Notice along with the Scheme and Important Annexures !

The Scheme is on the company website but without the all important Annexures at

http://www.khodayindia.com/pdf/scheme_of_arrangement.pdf

So what is the  Real Controversy !? 

The Scheme spells out the Cancellation of  3931042 Non Promoters Shares at Rs 75 by issuing a Cash Warrant for this amount  to the Minority Shareholders ~ The Company will discharge the Taxation for the Premium of Rs 65 under Sec 115 O of the Income Tax Act of 1961 while the Shareholder will have to take on any tax liability for the return of Face Value Capital of Rs 10 ~ The Rs 29.48 crs to be paid by the Company will come from it’s accumulated distributable Reserves .After the  Cancellation the Equity Share Capital will reduce to Rs 33.66 crs all held by the Promoters

While specific mention of Delisting is not there in the Scheme Document it does mention the relevant Sections  391 to 393  read with Sections  100 to 104 of the Companies Acts and in accordance with the procedures prescribed by SEBI Circular CIR/CFD/DIL/5/2013  of February 4,2013

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1359986006632.pdf

Clearly this Circular states that both the Stock Exchange  on receipt and the Company on sending to the Exchange must immediately put up on it’s website the Draft Scheme along with all the Documents specified like Valuation Report and Fairness Opinion 

BSE yet has to after over a week while Khoday has merely put up the Scheme without the accompanying Annexures mentioned in them 

Mischief or Oversight ! ?

The Controversy is that the Minority Shareholders feel that the Value of the Company is much more than Rs 75 that they are being compulsorily offered and have to accept as the shares stand cancelled ~ their argument is that there is huge Real Estate Development  taking place through Khoday’s Investment of Rs 61.48 crs in a 75% Partnership Interest in Laxmi Estates  ~ wonder if the Contract Income of Rs 40.69 Crs received from a Firm (name not mentioned) in FY 12 for making over Risks and Rewards for a Project relates to Real Estate Development and Laxmi Estates !  

The Minority Shareholders certainly may have a very strong point if one goes by just one Khoday and Prestige Estate tie up that was announced in 2012 for Prestige to develop a 40 acre plantation in Bangalore  ,part of a Glass factory land owned by Khodays ~ The land cost alone was Rs 12 crs an acre making the plot worth Rs 480 crs !

http://bangalorerealityspeculation.blogspot.in/2012/06/khoday-and-prestige-ink-mou-for-40-acre.html

Khodays  own or have an interest in  a lot of Agricultural ,Residential and Commercial Properties in and around Bangalore ~ the key question is that the listed company Khoday India has an interest in how many of these and to what extent and through which entity and investment? ~ These details are not forthcoming   

Clearly the Minority Shareholders feel deprived that the Khoday Family is unwilling to share some of the Real Estate Good Fortune with them by undervaluing Khoday India’s interest in them or moving out such interest to the Family at low Valuations ~ The Annual Report lists  Scores of Related Parties and this begs the question ~ Why? 

Thus it becomes vital to see on what basis the Valuation Report and the Fairness Opinion  has been prepared  for the Scheme of Arrangement that arrived at an exact value of Rs 31.39 per share     

The Scheme justifies Rs 75 Cancellation Price stating that it is 2.39 times the Value as arrived in the Independent Valuation Report and 1.40 times the 26 weeks high and Low Share Price Average from October 22,2013 (sic) to April 19, 2013 ! The October Date should have read 2012 ! ~ just shows how comically nonchalant Khoday Promoters and Management are in this exercise that they do not even proof read such an important legal document ! ~ of course they’ll say it was an inadvertent oversight !

For the Record the Audited Consolidated Book Value at March 31,2012 was Rs 28.90 with the Networth at Rs 108.65 crs with Reserves of Rs 71.06 Crs including Revaluation Reserve of Rs 12.19 crs ~ Long Term Debt was Rs 27.71 Crs with Short Term Borrowings of Cash Credit at Rs 70.91 Crs

9M FY 13 shows a Loss of Rs 16.77 crs  dropping the Book down to Rs 24.44 per share  as Networth drops to Rs 91 crs ~ so Rs 75 being paid to Shareholders may look like a Heavenly Exit Price had it not been for the Real Estate Valuation Angle

And are we to really believe that Khoday continues to do badly because 2/3rds the Shelf Price of IMFL is because of High Taxes and that it  was short of Cash to have even defaulted on payments of Just Rs 1.17 crs to Canara Bank and Dhanlakshmi Bank in FY 12 but has Rs 29.48 crs in accumulated Profits to pay off Minority Shareholders under this  Scheme of Arrangement despite a huge Rs 16.77 rs loss for the 9M FY 13 !

The Promoters and the Company make it appear in the Scheme that they are doing a huge favour to the Minority Shareholders by cancelling their shares at Rs 75 ~ stating that this was being done to mitigate the hardship suffered by public shareholders as they never got any dividend and the share price fluctuated in a low price range with low volumes making the investment an unattractive proposition !

A Scheming Ploy perhaps to get the Scheme approved by the Court and the Exchanges and SEBI ! ?

Perhaps Minority Shareholders never really existed for the Khodays !? ~and perhaps they were suckers to think that the Khodays would allow them to ride the Real Estate Story in Khoday India successfully !?  They’re spelling Khoday as Kho-Dey! now !  ~ soon to become “Kho-Diya!”

…and suckers that we are ,we continue to live in Hope that our Primary & Secondary Markets will regain credibility and sanctity and bring back the retail and small investors !

” Mera Karan Arjun Ayega !” ~ ” Mera Karan Arjun Ayega” 

Emkay Global @ Rs 17 in trouble as NSE rejects application to annul trades of October 5 2012

On October 5,2012 Emkay Global suffered a Loss of Rs 51 crs on squaring up trades that were executed from a Templeton order  punched in by a dealer erroneously in  more quantum than it should have been ~ the order was of a value of Rs 17 lakhs but the dealer instead punched in 17 lakhs nos  and the order value shot to nearly a Rs 1000 crs ! of which nearly Rs 700 crs was executed before the mistake was discovered and thus had to be squared off

NSE after an extensive investigation just rejected Emkay’s application to cancel all the relevant Trades of October 5,2012 early morning as there was material error in punching

Emkay has also send a notice to the BSE as below

“We are in receipt of NSE letter dated April 30, 2013 on May 01, 2013 late in the evening regarding the decision of the Relevant Authority of NSE on the application made by us for the annulment of the error trade of October 5, 2012. The Relevant Authority of NSE has denied our application for annulment of trades arising out of a clearly erroneous entry of sale order on October 05, 2012. The Company is considering various legal course of action including challenging the decision in exercise of its statutory right to appeal.”.’

Emkay is quoted at Rs 17 (FV Rs 10) giving a market cap of Rs 41 crs ~ Promoters hold 73.24%

In March/April 2006 it came out with a Rs 75 crs IPO offerring 62.50 lakhs shares in the price bad of Rs 100 to Rs 120 ~ and the following year 2007/8 was their best with Profit of Rs 23.50 crs ~ since then the next four Financial Years  dragged down a loss in 2008/9 followed by Rs 8 crs each profit in the following years and again drifted to a marginal loss in FY 11/12

Current Book Value is Rs 50+ with Networth at Rs 134 crs of which Equity is Rs 24+ crs

Clearly Rs 51 crs loss will be a huge setback to Emkay ~ destabilising their operations big time in very competitive times ~ Emkay will surely appeal

Several years ago the Emkay Promoters had sought a meeting with me as one of their Broking Clients and my Advisory one had made a 600% + gains on his Portfolio inside a year and they wanted to meet with the guy whose advice did this ! ~ they had only recently set up a Research Team taking several analysts from a leading stock market media  house  and they wanted to tie up with me  ~ did not work out as I must have quoted too high I suppose !

…and it’s sad luck that Emkay did this deal on NSE and not BSE for BSE may just have helped them out given it’s past track record for doing so when during Broker Dominated Boards, EDs and Presidents have had to resign for malpractices ~ like opening the Exchange in the middle of the night to insert trades ! or else some brokers would have gone bankrupt on their positions !

In 1996 even I faced such a situation with BSE ~ I was deprived of Rs 3 lakhs in early morning intra day trading profits on the newly listed Bank of Baroda when despite a clear notice that partly paid up shares trading and fully paid up shares trading have do be done in separate Codes,many brokers traded in just one code and suffered losses~ they quickly approached BSE Authorities to cancel the trades ~Mr R C Mathur was the ED at the time  and he took a unilateral decision to do so without even talking with the counter party Brokers whose clients,me being one of them,had made the profits ~ I was livid and spoke directly to Mr Mathur as my Broker was unwilling to take an aggressive stand ~ Mr Mathur had the arrogance and audacity to say he need not have to talk or consult with Brokers before making any decision ! ~ I told him with such an attitude he would not last long  as ED and God help BSE while he was there ! ~But he did last another two years before  He had to take the fall for the 1998 fiasco for Harshad Mehta’s trading and payment crisis on BSE in BPL,Sterlite and Videocon

Given their Closeness with Brokers and past precedence of going out of their way to help them, BSE certainly would have had a soft approach with Emkay

Emkay Bad Luck it had to happen on NSE  and not BSE ~ BSE did not have depth for such Nifty basket Shorts at the time !

Inefficient Markets or Inefficient Valuation !? ~ Saint-Gobain Sekurit India (SGSI) is to amalgamate into Grindwell Norton (GN)

The Ratio is One Share of GN of  Face Value Rs 5(currently quoting @ Rs 259) for every 17 shares of Face Value Rs 10 of SGSI (currently on lower circuit of Rs 2o.25 )

Of course rationally all SGSI Shareholders should exit as the Market Price Gap is @ Rs 100 considering the Amalgamation Ratio ! ~ the Book Values of both listed companies indicated a better ratio of 1:12

Check out the details just posted on SCRIP STANDPOINT Module on my company website

Unfair Amalgamation Ratio of 1:17 ?~ Saint-Gobain Sekurit India into Grindwell Norton ~ 29-Apr-2013

Minority Shareholders of SGSI are just flies being shooed off  yet again after a failed delisting attempt by SGSI  in June 2012!

SEBI  needs to intervene to protect minority shareholders and to confirm which is Inefficient ~ Market or the Valuation !

Had indicated on April 4,2013 and later in an addendum on April 8,2013 that RCom had little downside and would move up ~ It was Rs 65 on April 8,2013 and touched Rs 100 + inside a fortnight today !

Ambani Brothers seal a Rs 1200 cr deal between two of their Reliance companies~ elder taking advantage of the weaker younger

Wednesday, April 3rd, 2013

Reliance Communication on Fire Today ! Opened at Rs 87.10 and touched a High of Rs 100.05 on BSE ! ~The Share Price simply began zooming past Rs 90 on heavy volumes after 2.30 pm to reach Rs 100.05 on BSE ~ As we close NSE Volumes are near 61 million while BSE Volumes have crossed 17.3 million from under 7 million at 2.30 pm with Average Trading Price over Rs 92 ~ Last Tdae on NSE was at Rs 97.75 and on BSE at Rs 97.45

Don’t Chase the Story and Play the Game where the remote control is not held by you ! !

But why were upper circuits revised twice from 2.30 pm !? ~ to facilitate further heavy buying and raising price by Insiders ! ? or to give a chance for exit to those who had shorted !? ~ On  inquiring with the BSE Surveillance Department why the Circuits were revised twice after 2.30 pm first from Rs 94 to Rs 99 and then to Rs 103.30 after 2.30 pm ,the guy gave this reason ” because RCom is in F & O there are no circuits !” and on conveying fear that there was clear indication of Insider Trading  with orchestrated heavy abnormal buying from 2.30 pm this is what he exclaimed and disconnected ” No ! No! This is all I can tell you!”

Exchanges and SEBI need to investigate…..

Clearly Insiders were at play ! ~ probably they  know of a Deal that has happened but yet has to be announced (Read RCom notification to BSE below) ~ They had already began the Integration of Reliance and RCom Teams a year ago before they actually made the announcement for ‘Jio’ as linked above

BSE Website shows this post at 8.18 am this morning

Reliance Communications Ltd has informed BSE that:

“We note recent reports in the press and confirm that Samena Capital, in a proposed Consortium with certain other global PE funds, is at an advanced stage of the process of due diligence and completion of definitive documents in relation to the acquisition of Reliance Globalcom Ltd., our global communications services business unit.

The intended time line for completion is end of May 2013.

At this point, there can be no certainty that this will lead to a transaction. A further announcement will be made in due course, if and when appropriate.

RCOM and Samena Capital are no longer in discussions with Batelco for the purposes of the above transaction.”

Geodesic @ Rs 9.97 ~ Incredulous this yet Incredible Faith  in a Company that is completely undeserving !

Till late last year @ 30000  Shareholders,including 45 FIIs, were unaware they were sitting on the edge of the cliff ~ the cliff cracked and it’s been a horrific downward spiral from near Rs 60 to under Rs 10 inside months !

Wealth Nearly Exterminated ~ √

Shareholders Nearly  Exterminated ~ √

Perhaps Shareholders deserve this state and fate as only 110 of them attended the recent  AGM on February 11,2013 in Mumbai !

So what’s with so many recommending Geodesic last year  that’s it a great Buy ~ perhaps even a multibagger ! ~ and Shareholders climbing from 7500 levels in 2006 to 30000+ at December 31,2012 !~In fact 3000 +shareholders were added in the Quarter October to December 2012  ~ What were they excited about and what did they miss !? ~ Let’s examine

Who are the Promoters and what does the Company do

It’s a Troika that promoted Geodesic Ltd to offer software and software related products and services~ Pankaj Kumar is the Chairman while Kiran Kulkarni is the MD and Prashant Mulekar is the ED ~ At December 31,2012 they collectively held 14.90 % of the Equity of Rs 18 crs down from the 25% + held a quarter earlier ~ clearly pledged shares were being offloaded on share price beginning to drop in December  ~ The situation now may be even be a much lower stake  in terms of their holdings in the company on further offloading

Buyback Announced of upto 25% of the equity upto Rs 75  

November 27,2012

Geodesic Ltd has informed BSE that in continuation with the decision to buyback Equity Shares of the Company through stock exchange mechanism, the Board of Directors of the Company at their Meeting held on November 27, 2012 have discussed and approved to buy back upto 25% of the Equity Shares of the Company at a maximum buyback price of Rs. 75/- per share subject to the approval of the shareholders through Postal Ballot

Financials for FY 12, 15 months ended June 30,2012 

December 4,2012

Geodesic Ltd has informed BSE about the Audited Financial Results for the Financial Year ended June 30, 2012

Earnings ~ Standalone Profit is Rs 230 crs on Sales of  Rs 869 crs giving an EPS of Rs 25+ on an Equity of Rs 18 crs (FV Rs 2)

Assets ~ Standalone Networth is Rs 1266 crs with Reserves at Rs 1248 crs giving a Book Value of Rs 141

Consolidated Financials show EPS at just under Rs 29 with PAT at Rs 260 crs and Book Value at Rs 191 with the Networth at Rs 1721 crs ~ Also shows Cash & Cash Equivalents at Rs Rs 1139 crs ~ while the standalone shows this below Rs 1.5 crs !

Thus with such High EPS and Book Value the Relative Price Multiples are crazily seductive despite Company showing Net Loss in the FY 13 till date

Dividend for FY 12,15 months ended June 30,2012

December 4,2012

Geodesic Ltd has informed BSE that the Board of Directors of the Company at its meeting held on December 03, 2012, inter alia, have Considered and recommended final dividend @ Rs. 2/- per share on the face value of Rs. 2/- each on equity shares of the Company to be paid after approval of shareholders in the AGM

Plan to Redeem the FCCBs in Full 

In December 2008 the Company raised @ Rs 500 crs by issuing  US $ 125 Million FCCBs that carried 6.6% pa maturity premium ~ this was ,as specifically stated in the Issue Terms,for investment in Overseas subsidiaries and acquisitions only

The FCCBs are quoted in Singapore and the Company has brought back US $ 11.5 million face value and outstanding nominal remains at US $ 113.5 million

The Repayment was to be after 5 years Maturity in January 2013 for US $ 150 million or Rs 827 crs ~ They remain outstanding and were shown at June 30,2012  in Other Current Liabilities as Zero Coupon Bonds ~ Company has repeatedly stated they plan to redeem the FCCBs in full ~ the Conversion option will not be exercised as it yet stands at the original Rs 307 !

Risks that probably Shareholders missed seeing or underplayed them  

• Two Independent Directors resigned in 2013 ~ both well known in the judicial field and from leading law firms ~Mr Nitin Potdar ~ noted and accepted in the Board Meeting  on January 17,2013 ~and Mrs Radhika Pereira ~ noted and accepted in the Board Meeting on February 22,2013 ~ Mrs Pereira joined the Board only in the last FY on September 30, 2011 and ironically was confirmed as a Director only in the Feb 11,2013 AGM ! ~ she resigned within days thereafter ! ~ They need to tell us what they know that made them resign !
• Geodesic Ltd itself  had little  cash at June 30,2012 but consolidated shows Rs 1139 crs cash and cash equivalents but with Rs 1129 crs of this in Bank Deposits with over 12 months maturity at June 30,2012 !!! ~ A Review of the FY 12 Annual Report reveals that the Standalone Networth of Rs 1266 crs + Initial FCCB Borrowings of Rs 500 crs are largely invested in Subsidiaries for Rs 904 crs of which main is Rs 813 crs in the 100% owned Geodesic Holding Ltd, Mauritius and in Long term & Short Term Loans & Advances  to related parties of Rs 78 crs and Rs 611 crs respectively of which nearly all at Rs 685 crs  is in 100% owned Geodesic Technology Solutions Ltd,Hong Kong  ~ The Hong Kong subsidiary in fact also had Product Income transactions of Rs 816 crs in FY 12 with Geodesic ! ~ So Geodesic also Sells all to it’s Hong Kong sub and even advances huge amounts to it ! ~ This is rather suspicious ! ~ Is the Hong Kong sub remitting funds back as Billing Dues from the Loans and Advances being extended to it by India itself !?
• This Essentially means the Funds all lie outside India ~ over Rs 800 crs as Equity in the Mauritius subsidiary and over Rs 700 crs ,largely as Loans in the Hong Kong Subsidiary ~ yet the FY 12 Accounts state that Segment Assets of @ Rs 2400  crs are in India !
• FY 12 Accounts show Rs 64 + crs as Bad Debts and Sundry write offs  
• The AGM first announced for December 31,2012 was pushed to February 11,2013 due to unforseen circumstances and only 110 shareholders attended ~ perhaps the rest of the 30000 were in ICU ! 
• Accepting the explanation at Face Value from Promoters that the Inventory Levels were high due to increased demand from overseas markets and advance buying and stocking before the Rupee weakened further ! ~ they overlooked what was also stated that Governments had delayed implementation plans
• There is delay in receiving payment for Trade Receivables ~ company says as they deal in government and telecom sectors the normal payment cycle is 120 to 180 days 
• The last Five Financial Periods show EPS levels between Rs 16 to Rs 30 ~ Yet Dividend has never crossed Rs 2 ! indicating a poor dividend payout of profits ~ clearly there was a cash tightness for a long time
• The Cash Tightness should never have been there given the super profitability through the years ~ this sparks of suspicion that the FCCB route was merely a circular fund route ~ Monies received and Monies invested in overseas subsidiaries ~ Who subscribed to these FCCBs ?
• The Company has opted to hide behind Sec 212(8) of the Companies Act 1956 which permit it to apply for permission not to attach the full Financial Statements of it’s subsidiaries which it consolidates in it’s accounts ~ It has three domestic subs and ten overseas subs of which 8 are step down ~ the overseas subs are all over the tax havens ~ British Virgin Islands,Mauritius,Uruguay,Singapore,Panama,Dubai ~ To me this is not evidence of  Global Expansion but purely an exercise in Obfuscation     
• Company keeps stating they will be in a position to repay FCCBs in full once they have restructured their step down subsidiaries and are close to doing so (stated a few days ago on March 22,2013) ~ did they not know the repayment was due in january 2013 so why did they put Overseas Cash in Bank Deposits with maturity beyond January 2013 and why did they not commence corporate restructuring in time. 
• The AGM of Feb 11,2013 has passed a resolution that FY 12 Dividend of Rs 18 crs (Rs 2 for 9 cr shares) cannot be paid to shareholders unless the Company receives a written approval from plaintiff to the suit,or are given a green signal by the lenders or on full payment of loan they receive a court order to go ahead
• Promoters Equity Stake is just 1.35 crs shares or 14.90% of Total Equity at December 31,2012 ~ of this holding only under 19 lakh shares are pledged ~ However a quarter earlier at September 30,2012 the Promoters held a 25.35 % stake with over 60% of this pledged ~ Clearly there has been selling of the pledged shares as margins played up on the financing on share price beginning to drop in December 2012    

Union Budget 2013 ~ India is a BLESsed Economy

Felt like a stand up comedian as had the house of 400 well informed investors in splits !  when I address and interacted with them on Budget Day Feb 28 evening itself at a Budget Review Event jointly hosted by AIVF,JITO and the BSE Brokers Forum at KC College Auditorium

Gaurav Parikh on Dias before his Humorous Address to 400 in the audience On Budget Day Feb 28,2013

Covered this on our Company website as below :

SCRIP STANDPOINT ~ A View

Slide Share ~ The Presentation at the Event to support the Address & Interaction

Union Budget 2013 ~ India is a BLESSsed Economy…

Enjoyed on the Budget Day Evening itself Feb 28,2013 addressing and interacting with a well informed audience of 400 on the Union Budget 2013 ~ on how the Government plans to make Money to tackle deficits and how we can ! ~ plan to host a few thoughts of my presentation on the company website www.jsalphaa.com and on this blog ~ covered how FM has cleverly and conveniently balanced the budget ~ also covered  the Forward Trends in Equities &  Indices & Gold & Exchange Rate & how Debts & Deficits are forcing Disinvestments & how the malaise continues on our exchanges and it will be some time before the retail investor comes back,if at all ~ spoke on Liquidity,Sentiment,Momentum and Valuation

Felt more like a Stand Up Comedian as the audience were in splits on some of the budget and stock market situations I presented…

Union Budget 2013 Review Event

MCX-SX launched their Equity & Derivatives Segment today with 700 members and 1116 Listed Stocks and their SX 40 Index

The Launch Equity & Derivatives Segment of  MCX-SX ~India’s Newest Stock Exchange

Just returned from the launch of the Equity & Derivatives Segment of  MCX-SX,India’s New Stock Exchange at Hotel Trident in Mumbai ~ packed Regal Room and live launch functions in four cities beamed on the screens as were also the Live Proccedings

Met up with many,including Joseph Massey the MD and CEO of MCX-SX and Dr Bandi Prasad,President of FTKMC the knowledge arm of MCX, in our Capital Markets

Met two ex BSE CEOs but did not see any from the current top management of  BSE and NSE ! ~ MCX-SX is now their competitor ~Even the Invite Cover ,if you observe above, does not show BSE with a history of 138 years or NSE with a history of 20 years !  

A 5 Minute AV was shown highlighting  moments of Capital Market History and MCX-SX ~ A few  Short Speeches later  Finance Minister, P Chidambaram rang the Gong @ 4.15 pm to launch the Equity & Derivatives Segment of MCX -SX  and also launced the New SX 40 Index and even punched in a symbolic Trade ~ quite ironically it was a Derivatives Trade and he had just sounded an alarm in his speech of how concerned he is of the high level of Non Delivery Trades !

MCX-SX begins Trading on Monday

SX 40 ~ The Index of India 

The SX 40 is tagged as the Index of India by MCX-SX~ It is a free float based index with a starting base of 10000 as on March 31,2010.It has 40 top large cap Consitituents ~ all the 30 of the BSE Sensex except for the two S’s ,State Bank of India and Sterlite ! ~ Although  Wonder Why these have been excluded though it should meet their stated criteria of positive networth,free float of at least 105 and within top 100 liquid companies~ they also have  Industry capping at 20%( +/-) 2% band  ~ and with HDFC Bank and ICICI Bank the current weightage is already 22% for Financials (it’s 29.4% for Nifty and 26.4% for Sensex) and thus State Bank could not be accommodated ~ or probably not in the 1116 Companies that are listed and will begin trading on Monday ! ~ we’ll know Monday!

Interestingly SX 40 has Zee Entertainment as a constituent which neither the Nifty nor the Sensex has got !

Some noteworthy speech bytes…..largely verbatim but definitely in context

Ashok Jha ~ Chairman MCX-SX

“I am often asked why another Exchange when two already exist!? and my simple answer to that is because Competition benefits the Consumer” 

Jignesh Shah ~ Vice Chairman MCX-SX

” Today is a very auspicious day to launch the MCX-SX ~ It is a very holy day in the Maha Kumbh Mela and also from tomorrow the Chinese launch their New Year” 

“India has never given enough respect to Capital Markets as they have to the Banking and Insurance Industries”

” No Finance Minister of any country at anytime has respected Capital markets and launched several Initiatives to boost it like our FM Mr P Chidambaram has done!”

“Corporate Bonds Market Capitalisation is just 6% of GDP while even in a country like Malaysia it is 57%”

” Launched MCX-SX because when observing the existing two Exchanges there was simply no Competition from one of them”

” For Financial Inclusion and Financial Literacy,MCX has tied up with IGNOU for  a MBA in Financial Markets Post Graduate Diploma Programme and offered across hundreds of Universities and Colleges in 27 States” 

U K Sinha ~ Chairman,SEBI

” There are 21 Registered Exchanges of  17 have not traded for the past 5 years,in fact 13 of them for the last 10 Years !”

” My serious advice to Stock Exchanges is that when you have to choose between Maximisation of  Profit and Risk Mitigation,please choose Risk Mitigation.You are the First Stage Regulator before us”

P Chidambaram ~ Finance Minister of India

” If the Stock Exchange hires two Nerds,SEBI should hire three Nerds !”

” To Bring back Retail Investors keep the Products simple,demystify operations and inject trust back “

“There are many malpractices ~ few are spotted~ but virtually none are punished”

“Worried about Insider Trading and the High Level of Non Delivery or Speculative Trade ~ we must do something to increase the level of Delivery Trade”  

“Aware that Option Trading has shifted Overseas and we shall bring it back”

“GDP will be 5.5% and only among the large countries,Phillipines,Indonesia and China have a higher rate ~ yet this is not enough and we must bring it back to 8% and Government is taking measures to do so”

” In my recent visit overseas to Hong Kong,Singapore,Frankfurt and London I found the Foreigners are more confident of India than we Indians ! ~ FIIs are investing heavily even though DIIs are selling !~ We must have more belief in ourselves!”