Geodesic at Rs 9.97 ~ Wealth and Shareholders Nearly Exterminated !!!

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    
How could the Company state that the shareholders questions were satisfactorily answered at the AGM on February 11,2013 ! Every question answered raises more questions !
FCCBs ~ Pledged Shares ~ Host of Subsidiaries in Tax Havens ~ Suspicion of Circular Funding ~ Question Mark on Sales being Genuine ~ Abysmal Dividend Payout ~ These and more are all pointers to a massive manipulation gameplan that sucked in shareholders
And don’t pity the Promoters ! they may have shown they’re taking small paypackets of Rs 22.50 lakhs each but they control Funds of over Rs 1000 crs overseas  ! and we have no idea what they are using these for ~ dont get fooled that they lie in bank deposits ~ these may be under lien ~ and we need to know which banks they lie in to find out if they are  ~ and so we need the full subsidiary accounts
Geodesic Promoters need to be grilled thoroughly by SEBI,RBI,Exchanges where it’s listed and by Minority Shareholders
And those Analysts and Experts who love Geodesic need to rethink their Buy Recommendations  given such incriminating questions
that arise
Scenario assuming FCCBs are repaid in full  
Even if the FCCBs are repaid shortly from the Bank Deposits held overseas ~ I believe the Promoters and Company has given an undertaking to the Singapore Stock Exchange ,where they are listed ,that they will do so soon and even apparently shown the FCCB Holders proof of these Deposits ~ the Company may only breathe some relief
There are at least Three Questions that yet need to be answered even after FCCBs are paid off
  1. The Standalone Networth of Rs 1266 crs at 30/6/2012  ~ Does this represent realisable Assets? ~ In simple words the Book Value is Rs 141 ~ if Geodesic were to close Operations then will Shareholders get paid the Book Value of Rs 141 ! ? ~ If so then Rs 9.97 quoted share price is a gift ! ~ This however does not appear to be a likely scenario !
  2. Why did the Company do what it did !? ~ Made( Show?) Sales of Rs 816 crs (nearly all of it’s sales) to it’s wholly owned Hong Kong Subsidiary and yet advance it Rs 685 crs as Loans and Advances !?
  3. Has Geodesic any strong Sustainable Business to show genuine Sales and Earnings going forward ? ~ find it difficult to trust the Standalone Sales shown of Rs 869 crs and the Profit of Rs 239 crs for FY 12 especially after subsequent developments and the FY 13 net loss till date
To me,the restated Balance Sheet assuming post FCCB Repayment scenario too looks suspect ~after receiving Overseas Funds as Trade Receivables paid and Loans and Advances returned from it’s Hong Kong Subsidiary and using all of these to repay FCCBs and other Borrowings and pending Operating Payments,the Company will be left with little or no Cash and while it may have no debt,it’s Networth will largely be represented by Investments in the Mauritius Subsidiary ~ is this realisable ? ~ Show me where the Networth Money is after FCCB and Borrowings are paid off !  ~ then only can we trust the Book Value of Rs 141 ~ or else it may well simply be an Equity of Rs 18 crs matched  by Funds left of Rs 18 crs !   ~ now thats just a Face Value of Rs 2 !
Ironically The Proposed Buy Back of 25% of Equity upto Rs 75  and Dividend Payment of Rs 2 may involve the lowest aggregate outflow now with share price below Rs 10~Rs 22.5 crs for the buyback and Rs 18 crs + Tax for the Dividend ~ all under Rs 45 crs ! ~ Would the Company have this much Cash at least ? Auditors had qualified on some small statutory non payments which have subsequently been paid ~ Company is and I daresay Promoters too are, clearly tight on funds ~ Promoters may have purchased shares last year and funded them from Borrowings for which they pledged some shares ~ they have been unable to top up or release these shares forcing the financiers to offload in the market ~ probably a big reason for the crash from December 2012 to date
Geodesic may well rise in the coming days once they announce that FCCBs have been paid off  ~ but before taking risks to invest in it do satisfy yourself with at least the three questions asked above !
I am not convinced ~ though I do pray Shareholders recover at least some of their Monies !
Have covered Geodesic also under Scrip Watch Module on www.jsalphaa.com ~ was planning it to be posted as a Scrip Tease,which it is,but as they are likely to repay the  FCCBs in full in the next few days have given them some benefit of doubt

6 thoughts on “Geodesic at Rs 9.97 ~ Wealth and Shareholders Nearly Exterminated !!!

  1. Hi Gaurav,
    Really an eye opening article. It makes me wonder, how important it is as a retail investor to dig into the information. Looking at their AR, auditors report says, they have not looked into the subsidiaries accounts and have relied on the numbers given by promotors. That itself raises a red flag. But who reads an auditors report as a retail investor. There is a lot to learn from these cases to always scrutinise the numbers reported by management and to approach a company with a skeptical view.

    Regards,
    Vikas

    1. Hi Lakshmi,
      Post my Blog on Geodesic I was at the receiving end of phones calls from those close to Geodesic,praising the blogpost while at the same time defending the promoters while acknowledging mistakes were made but they were not deliberate and passing the buck to an Indian Bank and even RBI for paperwork involved in the FCCB Redemption ~ Whatever ! ~ as far as I know the FCCBs remain unpaid to this day ~ had asked these callers for copies of last and latest audited subsidiary accounts ~ was told they are in the process of being finalised!
      These are the Geodesic Letters dated March 5 and 21,2013 that went to the Singapore Exchange Ltd SGX and were posted a few days later, assuring of completing the group restructuring and even FCCB Redemption by March end latest! ~ similar notifications were issued in India too to the Exchanges around this date
      http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B0D6ACAC4736277748257B270006B5E1/$file/GeodesicAnnouncementregardingFCCBRedemption.pdf?openelement
      http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_37AC0DACB5BFD5B148257B380082ED67/$file/20130321GeodesicAnnouncementonFCCBRedemption.pdf?openelement

      Just hope for all shareholders sakes the share price does recover

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