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“In India, companies may fall sick, but promoters rarely do!”

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January 18, 2010

Karuturi Global at Rs 22/23….one broker has termed it a multibagger on the Stock Channels…don’t get blinded,easily seduced or overwhelmed by such advice or even the media blitz by the Company

Karuturi Global (KG) is at a 52 Week High of Rs 23…..It’s Face Value is Rs 1…Volumes are heavy and the Market Cap is over Rs 1100 crs

There is growing euphoria about this Bengaluru Company which claims it’s the largest Rose Buds Stems Producing Company in the World and is now embarking on an ambitious Ethiopia centric agricultural foray that has the potential to supply 5% of mankind’s Food needs in the future !

Wow ! 

But this Blog serves to warn you to be careful about Investing in KG….be well informed of the Risks before you take them

KG is promoted by the Karuturis…MD is Sai Ramakrishna Karuturi and the Chairman is Surya Rao Karuturi

KG Needs a Lot of Monies before it can make these huge Monies it claims will be the outcome of the Ethiopian Venture….US $ 100 million annual profits by 2013 !…that’s Rs 460 crs !…that’s several times it makes currently

The excitement is centered around the Ethiopian Venture that invoves growing crops on government leased 3 lakh hectares ( 741000 acres) ….the land is 50 kms from the border of war torn Sudan  and a four day drive to the nearest port…however the 90 years sweet deal with the Ethiopian Government is that for the first six years KG will not pay any rent for this land…after that the rent is a meagre 15 birr or US $ 1.18 per hectare for the next 84 years….Similar Land would cost US $ 350 annualy per hectare in Malaysia or Indonesia……Labour Costs are under US $ 50 per month and under World Bank’s Poverty threshold of US $ 1.25 per day…Children too are employed…..though the daily pay complies with the minimum wage of 8 birr  (60 US cents)prescribed in Ethiopia….Profits are expected to be generated from exports of Food crops,including rice,corn and palm oil…Tax Treaties with China and India too are beneficial  

However Several  serious Corporate Governance Issues exist.The auditors,RGN Price and Co (Signing Partner,H S Venkatesh) have highlighted many of them in their Report that forms part of the FY 09 Annual Report….I’ve listed them below

  • Granting of unsecured Interest free loans of Rs 101.45 crs to11 interested parties…this is prejudicial to company’s interests…there is no prescribed repayment schedule and therefore the receipt of the principle cannot be verified as regular
  • Need to strengthen the Internal Control System with respect to procurement and sale of flowers
  • Company has taken four interest free unsecured loans of Rs 32.72 crs from associate entities and Directors.There is no repayment schedule
  • There is scope for improvement of the Internal Audit System in terms of coverage,reporting pattern and frequency
  • Company defaulted by by 58 days to pay Rs 66 lakhs to Banco Bilbao Vizcaya,Spain
  • Income Tax Authorities have raised a claim of Rs 7.19 crs for AY 2006/7   

Now let’s examine some crucial Financials……The Current Equity is Rs 48.93 crs after Deutsche Bank AG London converted US $ 2 Million FCCBs to 7375000 shares…at Rs 23,they have more than doubled their monies…there is a ESOS too and under this there was a recent exercise to grant 2533750 shares…all included in the above Equity read more

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