Stripping or Stealing the Listed Company of Assets ! ~ How Promoters are suspected to do it and Auditors suspected to allow it !

You’ve heard of Naked Speculation ! but have you heard of Naked Companies that have been rendered so because they were stripped off their Assets by their Own Promoters  !!!?

Have always known how Indian Corporates ,even some of the well known names, indulge in siphoning off funds and stripping and stealing assets of the companies they have promoted or taken over !

In fact this reality is well captured in the tagline for my blog  ” In India,Companies may fall sick but Promoters rarely do !”  

But this one takes the Cake !  ~ the Kolkata based Listed Company Vikash Metal & Power ~ Business Standard highlighted this in it’s edition yesterday ~The great Indian listed firm robbery

Vikash Metal & Power says on April 12,2012, it lost a building and other stuff worth Rs 90 cr to an “incident of robbery” and auditors have simply remarked that the Fixed Asset Registers were not shown to them  rather than raising deeper questions on this ! ~ the thieves also took away the registers where the company had recorded the details of its fixed assets ! ~ Wow ! ~ and I checked it was a Thursday ! when this ‘Immovable Property’ was ‘Moved ‘!

The Company has been promoted by the Patni Family ~Father Vimal Kumar Patni and sons Vikash Patni and Akash Patni.Their stake has dropped from 59% to just 15.06% as at December 31,2012 ~ all pledged.

The Share Price of the FV Rs 10 shares is just 54 paisa !

The Patni family was also the Promoter of another  listed firm, Impex Ferro Tech. In fact Vikash Metal & Power was shown as part of the Impex Group.Till December 31,2011 the Promoters Group shows these Patnis ~ but no longer so from then ~ The Share Price of Impex is Rs Rs 3.54 for a FV Rs 10 share

Clearly this has the making  of a massive Fraud here ! ~ Stealing with a Legal Tag !? ~ that’s the Substance over Form !

Some other ways of suspected siphoning of Funds or Assets from the Company are as below with links to Company  illustrations which I had extensively blogged on recently

  1. Writing off Fixed Assets as Impaired and Value not Recoverable ~ Goldstone Infratech  May 22nd, 2013
  2. Writing off Inventories stating it was a correction in erroneous valuation earlier  and reducing  Debtors outstandings  as being overstated as found out in a reconciliation and not found to be realisable !  ~Bhoruka Aluminium June 8th, 2013
  3. Using the Free Cash for Investments in Group Companies or extending Loans & Advances to Them ~Geodesic March 27,2013
  4. Inflating Project Costs & Expenses ~Reliance Industries  October 3rd, 2012

Shortly I shall also reveal, with clear financial evidence how the Promoter & Top Management lied and mislead, what I strongly suspect how the Vedanta Sterlite Group took the Minority Shareholders of Sesa Goa for a ride by Investing over Rs 12000 crs of Sesa Goa’s Free Cash in Cairn India stating it would be immediately EPS accretive ! ~ it has just received Madras High Court Approval to merge Sterlite into Sesa Goa now to make it Sesa Sterlite !

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Adieu 2010…Welcome 2011….Hope we get to welcome a ‘Magic’ Stock yet again !

Adieu 2010…Welcome 2011

They Say Our Life’s Expectancy is measured by the Number of Breathes we take…there’s a finite number pre ordained for each one of us….so here’s wishing that you take fewer Breathes in 2011,so that you live longer !

So Breathe Deeply and make your New Year Resolutions….and Breathe Deeper when you break them !

Given you some really huge Multibaggers in the 21st Century…Matrix Labs,Mercator Lines,Essar Oil,Sagar Cements,ICSA,Sesa Goa to name a few….have positioned you with a few more for the coming years

Let’s Hope 2011 throws up a real ‘Magic’ & ‘Miracle’ Stock up for you that makes you ‘breathless’! (so you live longer too!..refer up) and revs your Equity Portfolio up so fast that you can take an early retirement !….Maybe I’ll spot one for clients yet again…Now ! Now ! I said Maybe !

….but what I do promise on my blog is to keep warning you to stay away from Companies that seduce or are simply scandalously overpriced !…like Emami Infrastructure was when it got listed on the demerger !…High of Rs 600 on the NSE !…. and at Rs 100 + it was widely thought to have stabilised…it’s down to Rs 35-Rs 45 range now  within months !   

Cheers !   

Sesa Goa declares stellar Q1 FY 11 Results… yet many`Experts’ say ‘Sell’ or ‘Don’t Buy’ at Rs 350… Why ?

Expected this… a fabulous Q1 FY 11 for Sesa Goa… It’s best first quarter in history.. a consolidated net Profit of Rs 1302 crs giving an EPS of over Rs 15 on an Equity of Rs 85.97 crs (FV Rs1)… this was achieved due to higher Iron Ore Prices in the Quarter and good offtake by China and consolidation of Dempo Companies acquired in June 2009

So what’s prompted many leading FIIs to call a ‘Sell’ on Sesa Goa ?….. Prices have eased off and China is expected to slowdown offtake…. moreover it is widely expected that the Government will introduce a Special Tax on Windfall Profits just as has been proposed in Australia or may raise royalty rates…. and may even take an extreme step of curtailing or banning exports of iron ore…. Moreover Sesa Group is facing an investigation from the Serious Fraud Investigation Office for mismanagement, malpractices, financial and other irregularities ….. there is also the question of the pending amalgamation from April 1, 2005 of subsidiary Sesa Industries with Sesa Goa.. Sesa Group has moved the Supreme Court after the High Court had overturned an earlier order in it’s favour and the validity of the scheme has been extended to October 31, 2010…. an aggrieved shareholder had filed the case and Sesa suspects that this shareholder too is behind  the SFIO Investigation

In light of all of this the key question is whether  profits can be sustained at these levels in the rest of FY 11 to create a net of over Rs 4500 crs and take FY 11 EPS past Rs 50 or are we going to witness a cramped three quarters remaining in FY 11 where the aggregate profits of Q2 to Q4 would equal Q1 Profits and give a total net of just Rs 2500 crs thereabouts and an EPS of nearer Rs 30 ?

So we have a probable EPS range of Rs 30 to Rs 50 + to contend with in FY 11… At the current Rs 350 Share Price we then get a Forward FY 11 Multiple of 7 to 12 to live within…. taking a fairly conservative multiple of 10  we then get a Share Price range of Rs 300 (EPS 30) and Rs 500 (EPS 50)…. so we can say that there should be a limited downside from here… and there is a strong case for upside given such a strong Q 1 FY 11 and strong Current Consolidated Reserves of over Rs 9136 crs ( Rs 7834 at March 31, 2010 + Q 1 FY 11 PAT Rs 1302 crs) at June 30, 2010 giving a Book Value of Rs 106 that should cross Rs 120 this year as Reserves march past Rs 10000 crs… that’s a Book Multiple of under 3

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Sesa Goa drops 20% from all time high of Rs 490+ to below Rs 400…It’s a high Beta scrip…so volatility is expected

Dear Madhu,Hope this updated view on Sesa Goa answers your query you just posed on another blog….I’ve put it up as a seperate blog as it will serve a wider audience

In 2009,Sesa Goa had scaringly dropped to Rs 60 from levels of near Rs 175…and then burst away to record an all time high of Rs 490+….and in a matter of a few days now it has dropped below Rs 400

So what’s what’s unnerving Investors to unwind their positions in Sesa Goa?…a few weeks ago it was the ban on import of Iron ore of Fe content 60 and below announced by the Traders Association in China….I had blogged that this would not really impact Sesa Goa too much….but investors were unnerved and began reducing exposure…Price dropped to below Rs 430…and then came a bombshell from the Australian government…actually they had warned in January of sweeping tax changes in the Mining Industry…From July 2012 the Australian Mining Industry will face a higher tax of 40%  on the ‘super profits’ that they are making….US $ 2.8 Billion is expected to be the Tax collection from this Industry in 2012…BHP Billiton,Australia’s and the worlds biggest Mining Company expects their average tax rate on operating profits to go up to 57%……Mining Sector Sources opine it will lead to rising iron ore prices and China will have to absorb this…it may deter though,Overseas investments in Australia and impact the country’s competiveness….As expected,this tax hike announcement is facing very strong opposition in Australia…One view is that it is not fair to tax Mining Companies higher as their record profits have saved Australia the blushes in the Financial Mess that has enveloped the Developed Nations….also it is unfair to first allow billions of dollars in as overseas investments in ongoing mining projects and then hike the tax rate on profits that are expected to be generated  

China appears to be in a tearing hurry and is raking up steel capacity to record highs and therefore the demand for Iron Ore is robust and unabated…as long as this situation continues,Iron Ore Companies will continue making ‘super profits’….Sesa Goa is no exception here….just hope India does not follow suit like Australia and ramps up the tax rate on ‘super profits’ of Indian Mining Companies….what it has done ,however,is raise the export tax from 10% to 15% on iron ore slumps to try and ensure adequate domestic supply of Iron ore as India is on track to more than double it’s steel production from the current 54 million tonnes to a record 124 Million Tonnes in 2012/13

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Sesa Goa drops from Rs 490 to below Rs 470 reacting on News of a Chinese Ban on Imports of Iron Ore below 60% FE content…Should it cause any Worry?

Just last evening there was a News release that China’s Iron Ore Trading Association has banned it’s Members from Importing Iron Ore with a Fe Content of below 60%

Will this affect Sesa Goa?….Markets think so and have dropped the Share Price from Rs 490+ levels to below Rs 470 levels as I blog

If at all Sesa Goa will be impacted,It should merely be marginally….. and should not panic you to exit your Holdings…here are two brief reasons for this

  • The Ban does not cover the Actual Users, the Chinese Steel Mills… and their Licensed Agents…They can continue to import directly their requirements…Sesa Goa will cater direct
  • Sesa Goa deals also in Iron Fines with a Fe content of 61% to 63% 

China’s iron ore import needs are middle and low grade fines  with Fe content of 63.5% and below…Sesa Goa caters to this….Brazil exports largely high grade Ore

China imported 106 million tonnes of Iron Ore from India last year…40% of this was low grade Iron ore….Sesa Goa supplied over 12.5 million tonnes of total Imports from India,comprising 84% of it’s sales of 15 million tonnes

This latest move by the Chinese Trading Association is a twin attempt to influence Iron Ore Prices and purge their Traders ilk of many malpractices 

With the compelling Chinese Demand for Iron Ore,the pressure on Iron Ore Prices is unlikely to abate,unless China itself halts all Imports…unlikely

World Steel Production is expected to move towards 1500 million tonnes in the next year or two  and China’s share of it has grown  from 17 %  in 2001 to over 40% share currently

Where will China get the Iron Ore it needs ! ?….If Trading has been banned,the Mills will approach the International Suppliers directly…so the question is that by eliminating middlemen,will the Prices of  Iron Ore fall ?…if so,then by how much ?…. a lot depends on the long term contract prices being negotiated with Rio Tinto,Vale and BHP Billiton…Japan has already signed at 90% higher price levels than last year…China,the main buyer, is resorting to arm twisting yet again to get Iron Ore prices to drop…they tried it last year too…but in vain…I suspect their efforts this year too may fail….they realise they have no alternative to importing the Iron Ore…unless they choose to curtail Steel Production…this would affect their GDP Rate…they would think twice before letting their  GDP Growth rate drop

Monitoring Developments to protect your Sesa Goa Holdings is essential…but this ban should not cause you to exit Sesa Goa….It yet looks like a Compelling Buy..I blogged on this just yesterday…But you may reserve the decision to increase or initiate exposure till Company clarifies on the Impact of this Ban…my intelligent guess is that it would be a favourable clarification 

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Sesa Goa Up at record New High at Rs 494…More upmove potential…..but Sensex Down 256 points to 17714

After kissing 18000 yesterday after a two year gap,the Sensex dropped 256 points today to close at 17714…it was in the red right from day’s start at 9 am till close at 3.30 pm

But Sesa Goa surged to a record high of Rs 494+ and closed a few notches lower at Rs 490….I’ve been recommending this scrip vigorously from mid 2008…and I believe it’s positioning itself beautifully to move to record highs again in the months ahead…I will not be surprised if it crosses the four digit quote of Rs 1000 in the next 12 months

What’s so exciting !?….Iron Ore Prices are at sustainable Highs of over US $ 100/t

Sesa Goa should double it profits and make more than a US $ 1.25 Billion  Dollar Profit in FY 11

Japan has committed to buy Iron Ore on Long Term Contracts ( now quoted for quarterly periods) from the World majors Vale,Rio Tinto and BHP Billiton at a price 90% higher than last year !…that’s close to US $ 110/t…..Chief Buyer,China is negotiating and is expected to pay 80% higher prices than last year……Sesa Goa sells it’s Ore in the Spot Market and is currently realising over US $ 130/t

Sesa Goa has recorded a 59% jump in Q4 Volumes,with saleable ore of  7.8 million tonnes in the three months ending March 31,2010….Profits were just over Rs 1100 crs for the nine months at December 2009…Q4 will be fabulous on better realisations and I expect FY 10 to close with a PAT of over Rs 2500 crs…on a diluted equity of Rs 90 crs,the EPS should be in the Rs 25 to Rs 30 range…The Share Price of Rs 490 gives a P/E Multiple range of 16 to 20 on FY 10 expected EPS range….but the great expectations are for FY 11…read below  

Current Equity is a shade over Rs 83 crs (FV Rs 1) and fully diluted Equity would be Rs 90 crs after rest conversion of the FCCBs…5000 FCCBs of FV US $ 100000 each,were issued in late 2009 aggregating US $ 500 Million…Till date 1637 FCCBs have been converted at the pre-ordained price of Rs 346+

Next two Years look good for the Iron Ore Industry as China’s demand will not ebb as it’s Steel Production targets are high…..In FY 2011,Sesa Goa would have saleable ore between 20 to 25 million tonnes…assuming they realise an average of US 110/t in the year,the net margins after extraction and royalty costs would yet be strong at US $ 70+/t…that’s Rs 3000/t…that’s Rs 6000 crs for 20 million tonnes and Rs 7500 crs for 25 million tonnes…that’s a potentially high EPS range of Rs 67 to Rs 83 in FY 11…at a 10 to 15 multiple applied to the extreme ends of the EPS respectively,you’ll arrive at a target Share Price Range of Rs 670 to Rs 1245 !…we’re at Rs 490 levels now….so we’re looking at a minimum 40% upmove from here and a potential doubler + in the next twelve months

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