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?
(3/12)
To summarise so far, Walker Chandiok called 9MFY23 financials as 'made up' by the management. What is shocking is that the flagged issue, performance of contractual obligations, is mostly matter of FACT not opinion - management simply decided otherwise.
(4/12)
Full audit takes place only at the end of the year, so you can chipkao whatever you want in the interim?
How is this not misrepresentation of financials?
Interestingly, number of shareholders has shot up 2200% in 9MFY23 while price has dropped 75%!
(5/12)
Around the time this stock was peaking, lots of articles started coming out in dubious media showing the 80x price rise....distribution tactics? Especially when it coincides subsequently with supposedly cooked up financials to enable offloading to retail?
(6/12)
Even now reputed media like LiveMint carry pieces highlighting the 'multibagger' returns of this stock - and not surprisingly, the number of shareholders has FURTHER increased from 44K to 52K. Oh you unwitting doyens of investor welfare.
(7/12)
So here's the summary:
(1) 80x price rise based on tight shareholding
(2) After peak in Q4FY22, financials supposedly cooked up for 9MFY23
(3) During cooking period, 25x rise in public shareholders while price dropped 75%.
(4) Party's over, unravelling begins
(8/12)
This is a very fit case for @SEBI_India to initiate forensic audit for previous fiscals too, especially considering auditor allegations + almost nil cash flow in FY22 - means all the financials are only on paper (and perhaps not even that, if auditor to be believed).
(9/12)
In H1FY23, EKI showed OCF of ~150 crore, mostly from managing inventories and trade receivables. And remember, Walker Chandiok has already called out improper recognition of revenue and profits...which should also impact the cash flow statement....cannot trust these nos!
(10/12)
Walker Chandiok and EKI are probably having a massive tiff for the last 6 months over finalising FY23 accounts.
Wonder how this ends, will management 'convince' the auditor or will auditor take a stand?
Either way, there is enough here for @SEBI_India to investigate.
(11/12)
EKI's auditor issues are known, but I have been observing this vaporware since IPO and felt it was useful to contextualise the sequence of events - many will say promoter shareholding has not changed - but the real game is probably in the background!
(12/12)
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Read that BIS is refusing to certify factories in China and Vietnam and this is 'aimed at promoting local manufacturing'. Regulatory arbitrage businesses tend to be hot trends in the stock market. Not sure it's good for us as consumers, though.
(1/6)
If state wishes to promote domestic manufacturing, it can put tariff controls like it does for solar modules. If it wishes to promote better quality, it puts standards and BIS enforces them. BIS does not 'promote domestic manufacturing'; its function is quite different.
(2/6)
BIS exists to enforce quality standards. While imposing BIS standard itself can be a subtle instrument of foreign policy, BIS here is selecting *among* compliant manufacturers rather than certifying compliance. There is a key difference which is hopefully understood.
Star Health employee offers direct illegal API access to full customer medical records for $43,000; then stiffs buyer, asking $150k because 'senior management' wants a cut, buyer then promptly blows the whistle in retaliation. How incompetent could you be at white collar crime?
Had one job, (a) don't leave a trail and (b) don't cheat your accomplices. Wasn't that difficult to get away with. Have to be operating with zero fear of consequences to be this careless. Darwin award candidate. Video of interactions with employee here: archive.org/details/553521
Adding some screenshots from the video + LinkedIn profile of the alleged perpetrator.
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.
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.