Bizarre and brazen moves are common on the penny stock side of the stock exchanges. Vikas Proppant and Granite Ltd just released this intimation, announcing en-masse resignation of the entire management and board of the company to "bring in professional management". (1/7)
The shares of this company were heavily manipulated in the last 2 years, following the typical pattern of operators hand-in-hand with enabling management. Here's a look at the stock chart. Take a look at the volumes before the rise and the volume of trapped retailers after. (2/7)
Company has had almost no revenue in the last 3-4 years, except for a brief blip in 2019 when the stock prices also went up 6-8x in a very short span of time. In fact, it has been selling fixed assets this year. (3/7)
There's this hilarious announcement in January 2021, attempting to pump the stock based on "personal" visit by promoter to operation site, and use of heavy jargon for what is essentially mining rock out of the ground. (4/7)
Here's another announcement in July 2020 talking about 'share grabbing' and invitation to shareholders (hand-picked by management) for a site visit and personal chat with the erstwhile MD. (5/7)
Interesting to note that the previous MD, B.D. Aggarwal, passed away in September 2020. Quite likely the shenanigans started earlier during his tenure, and now the rest of the promoter group finally caught up and decided to exit the ship that was worse than sunk. (6/7)
While the utility of this analysis is minimal at best, it does serve as a useful reference point to recognize stock pumping. With experience, such manipulations are easy to spot even while they're taking place. The real game, of course, is spotting the sophisticated ones ;) (7/7)
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SEBI finally going after the finfluencer-broker nexus. Right time to point out Zerodha founders have tried all along to whitewash their role by acting holier than thou. One of them was caught cheating in an exhibition charity match with Vishwanathan Anand too. Leopard's spots...
So while on one side you have the founders going around 'cautioning' the retail public on trading and speculation, on the other side you have a massive funnel of fraud finfluencers directing traffic your way, driving the thousands of crores in profits. The house always wins.
The funnel relies on psychological manipulation and relies on a layer of separation (finfluencer)...history of speculation has shown that warnings and data rarely work where greed and manipulation are concerned...behave like a saint and just let psychology do the work for you.
Auditor of EKI Energy resigned in Nov'22, stating emphatically there was no dispute with management, and audit for H1FY23 was completed by them w/ clean limited review report.
But in Q3FY23, new auditor Walker Chandiok trashed the financials.
(1/12)
Management has recognised revenue, AGAINST opinion of auditor, in absence of fulfillment of contractual performance obligations!
In polite words, this seems to be fake revenue. 190 crore sales (~10%) and 110 crore (~40%) PAT. Almost half PAT is possibly...non-existent.
(2/12)
Now, EKI has STILL not released Q4FY23 results. It says this is because Walker Chandiok has to re-audit H1FY23 which was done by previous auditor. Seems like a valid reason, except it begs the question - why wasn't re-audit of H1FY23 being done since Nov'22?
1/ A good way to contextualize PE ratio, think it as earnings yield:
5x = 20%
10x = 10%
20x = 5%
30x = 3.3%
50x = 2%
As you go down this scale, you're paying increasingly more for growth + durability + intangible assumptions. If assumptions uncertain, how much would you pay?
2/ If you're worried about inflation and interest rates, just remember:
A 10% bond purchased at FV 100 is at 10 PE.
A 5% bond at FV 100 is at 20 PE.
It is a very simple way to analyze how much extra you'd pay for equity if I could give you a safe 10% bond instead?
3/ Yes, we are in equities for the unlimited upside, but once you spend a few years in the market and experience the realities, you will get a razorsharp focus on wanting to pay less and get more.
A steady-state earnings yield analysis is an excellent way to get perspective.
Most scenarios, vertically-integrated = better margins, as long as cost of key inputs becomes small fraction of costs eventually.
If KI are 50-60% cost at final stage w/ sharp price hike = business at sole mercy of end-customer w/ demand destruction.
Observe next few quarters.
In this scenario, commodity producer will not budge as many buyers in the market. Person who gets squeezed is the penultimate link in the chain. If end-customer unwilling to absorb full price hike, manufacturer WILL be holding the bag to keep the relationship.
Especially pertinent for exporters and industries where demand is very price sensitive. During benign pricing scenario you can get more efficient with vertical integration and improve realizations. However, when basic commodities roar, you will bear disproportionate impact too.
Some thoughts on investing in listed family-owned businesses.
Cobbled together from several years of investing in and observing such companies, and also some professional interactions with business owners.
👇
1) There are immense latent capabilities in family-owned businesses. People in business for 30-40 years, building incrementally. Eg. so many companies spent *decades* for 0-100, 5 years for 100-500, and are now aiming 500-5000 in next 5 (not accurate, but you get the point)
2) Most promoters aren't looking to rip off investors. But, they will put themselves first. Why? For promoter, business is his life's work (no matter how small) but for you it is an investment. Always see it from this perspective and differentiate every situation.
The 6 buckets of information I look at when analysing a company for the first time.
Most of these tend to be small companies with little coverage but with larger competitors.
A thread 👇 (1/14)
A. Assessing Promoters -> 60% holding preferably (not iron rule), either highly educated or very experienced in the business. Preferably minimal related party transactions, no unlisted entities with significant operations. Do not grudge high salary if otherwise clean. (2/14)
B. Assessing Balance Sheet - Looking for a clean, boring unremarkable balance sheet, not a good one. Preferably low historical share dilution (not including bonus). Preferably with only working capital debt. Share warrants in small quantities not a red flag. (3/14)