Asian Granito (AGL) scrambling to ensure the upcoming Rs 225 Cr rights issue doesn't run into headwinds. Promoters recently sold 12% of AGL to invest into a related party, and promoters will now invest back into AGL via rights issue! What's up 👇 (1/7)
Promoters justify 12% stake sale in AGL for investment into a related entity Adicon Ceramica LLP, where they state they have no holding. Weak argument, because business is intertwined and a designated partner of the LLP is a director in all material subsidiaries of AGL. (2/7)
AGL recently sold 18% holding in an associated listed company Astron Paper & Board, for 47 Cr. Now, promoters in this clarification state the rights funds will be used to primarily clear debt of Crystal Ceramics (CCL). But CCL isn't heavily indebted, debt is only Rs 140 Cr. (3/7)
AGL holds only 70% of Crystal Ceramics, rest 30% probably held by promoters or other third parties. If Crystal Ceramics did right issue and AGL put Rs 47 Cr sale proceeds into the rights issue, promoters would put in Rs 19 Cr for total Rs 66 Cr, addressing 50% of the debt. (4/7)
AGL with 74% public holding funds CCL to the extent of 100%, but promoters/third parties keep 30% of CCL for free without putting in a penny more. By the way, director of Adicon Ceramica LLP is also a director in CCL - they might be part of the 30% minority in CCL. (5/7)
By the way, spare a thought for minority shareholders of Astron Paper and Board - imagine waking up to find promoter sold 18% of the company. None of the last 3 Annual Reports of AGL talk about disposing Astron stake. Its valuation is also at historic low. (6/7)
Capital-raising events like these should be looked into very thoroughly, this could be another example of fund-raise for growth/debt reduction that wouldn't be needed if not for the leakages. (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)