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Independent perspective on Indian listed companies with focus on corporate governance. DM is open for anything interesting to analyse.
Ankur Parekh Profile picture Rahul saunik Profile picture Muscular Monk Profile picture drsatishmathur Profile picture 4 added to My Authors
28 Sep
Every annual report tells a story.

In small companies, you can read between the lines to get a feel of the management style and business economics.

I take Fredun Pharmaceuticals Ltd (FPL) to illustrate how to go about this (it's not pretty).

Let's go 👇 (1/n)
Please note that the main objective of this review is to get a preliminary understanding without doing a thesis.

It is oriented towards a "quick and dirty" review to decide if you want to dig deeper.

Review financials on a screener website before reading further. (2/n)
Now, you can already guess Fredun Pharmaceuticals is named after Fredun Medhora. His mother, Dr Daulat Medhora and his father, Nariman Medhora, are the original promoters of the company. Interestingly, Nariman Medhora has stepped down from active involvement in June 2021. (3/n)
Read 25 tweets
26 Aug
Noticed Shri Jagdamba Polymer Limited (SJPL) featuring recently, as a long term pick.

It's difficult to find a bigger potential conflict of interest from a minority investor's perspective.

Let's see👇 (1/11)
Fact: SJPL promoters have another unlisted entity Shakti Polyweave Pvt Ltd (SPPL) with exact same business. ALways a red flag, but lots of promoters have small side-busineses. Fortunately, public credit reports of SPPL have tons of useful information to understand further. (2/11)
SJPL was founded by RB in 1985, whereas Shakti Polyweave Private Limited (SPPL) founded in 1997 and identifies HA as the main promoter. While RB serves as director on both SJPL and SPPL, HA seems full-time in SPPL but does not seem to have any fixed role in SJPL. (3/11)
Read 12 tweets
25 Aug
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)
Read 7 tweets
22 Aug
This thread below was an example of allocation policies you don't want to find when analysing a rights issue. Let's see the other end of the spectrum. Natural Capsules Limited (NCL) announced a rights issue on 05 Aug 21 to raise growth capital. (1/26)
Why NCL with 100 Cr market cap? There are many small manufacturers like NCL. Without economies of scale, smaller players suffer from high fixed costs, obsolete machinery and lower operating efficiencies, which generally depresses margins and constrains future growth.(2/26)
Small companies can take decades to grow to a size where economies of scale kick in, or where they are able to benefit from favourable supply-demand situations. The objective, thus, is finding companies at cusp of higher return on invested capital and economies of scale. (3/26)
Read 28 tweets
20 Aug
There are a few things to look at when analyzing a rights issue as a special situations play. Capital allocation skills of the management rank right at the top. Fundamental question - is it growth capital or a cover-up for fiscal misprudence in the past? (1/13)
Let's see how to spot the ones that may be covering up past fiscal misprudence. In this example, I take NxtDigital Limited, with 1100 crore market cap. Previously called Hinduja Ventures, it provides TV broadcast and broadband services. (2/13)
NxtDigital announced a rights issue of Rs 300 crore in May 2021, in 2:5 ratio at a price of Rs 300/share. Further, it also paid Rs 5.50 annual dividend for FY21. At the same time, company has incurred negative PAT at consolidated level for 7 consecutive years. (3/13)
Read 14 tweets
10 Aug
What we're seeing in small caps and mid caps - broad decline and lack of momentum - is natural in the rotation cycle. If your companies continue to grow earnings, they'll be back and beyond in a few quarters. If not, you picked lemons. No amount of narrative can change this.
This is usually the time when investors start to doubt the narrative they believed so far. Pain of loss hurts a lot more than pleasure of profit. It's scientifically proven. It's difficult to believe "sector has tailwinds" when your own money is disappearing before your eyes.
It's easy to imagine a future where you're just minting money punting on stocks (I did too). Many would contemplate leaving their jobs. And now there's that knot in the pit of your stomach. Or maybe I'm too early? Another 20% down should definitely trigger it.
Read 11 tweets
30 Jul
Windlas Biotech DRHP - Boulevard of broken dreams for US PE fund 👇 (1/n)
Introduction: Windlas Biotech Limited (WBL) is a Contract Development and Manufacturing Organization (CDMO) for domestic pharmaceutical companies. This is 'hot' industry right now, so the IPO has been optimistically priced at 50X earnings with a price band of Rs 448-460. (2/n) ImageImage
WBL has had average performance in the last 3 years, with around 10% EBIDTA margin on average . 2019 was a good year but earnings have been stagnant for last 3 years. Cash flows are actually decent, with good conversion and some annual addition into fixed assets. (3/n) ImageImageImage
Read 28 tweets
21 Jul
PayTM IPO DRHP - Who moved my cheese? 👇 (1/n)
One97 Communications (One97) is primarily a one-man show. The board of One97 features 8 directors, of which 6 sit in the USA. Management team in India consists of Vijay Sharma (VS) and his lawyer (Pallavi Shroff). Yep, one man with 14.6% shareholding and a lawyer. (2/n) ImageImage
Let's talk about Paytm Payments Bank Limited (PPBL), though, the engine underneath the layers of One97 and behind almost every meaningful vertical of One97. VS holds 51% of PBBL. And One97 has an option to buy this stake. (3/n) ImageImageImageImage
Read 24 tweets
18 Jul
Want to do this kind of an analysis yourself? Lot of messages asking how to learn to do this. It's quite simple, let me show you step-by-step. (1/18)
The first step, obviously, is spotting a candidate gives insights when the data is arranged in a particular manner. In the thread, I spoke of 'cash profits', so let's take the other example I cited - Welspun India Limited (WIL). WIL also likes to talk about cash profits. (2/18)
Next step, you need to get data. You can use any popular screener website that allows you to download data in Excel format. My default is @screener_in by @ayushmitt and @faltoo. I don't get any incentives for this mention, it is just easy to use. (3/18)
Read 18 tweets
17 Jul
The bogey of maintenance capex – how the term ‘cash profit’ can be misleading for some types of companies but insightful at the same time. Read below⬇️
Some companies report ‘cash profits’ to measure financial performance. Two random examples - Time Technoplast (TTL) and Welspun India (WIL). TTL uses ‘cash profit’ in latest presentations but does not define it, whereas WIL defines it as profit before depreciation and tax. (2/22)
For TTL, I compared the 'cash profit' for FY20 from the Q4FY21 presentation, with the cash flow statement in AR FY20. The 'cash profit' for TTL seems to refer to cash from operations before working capital changes and tax. Quite hazy for the reader . (3/22)
Read 22 tweets
12 Jul
Yesterday I shared an observation on Oriental Carbon & Chemicals (OCCL), regarding their investments into VC funds and pre-IPO opportunities. A lot many wrote in with their views, so here are mine, with some international insights. (1/15)
OCCL is a very boring business - making insoluble sulphur, which is essential for vulcanizing rubber to make primarily tyres. Their latest annual report is very informative with respect to their strengths and market positioning, no need to re-invent the wheel here. (2/15)
Back when I first looked at OCCL several years ago, a colleague and I talked to some industry people to understand the indiustry structure. As anyone following OCCL will know, the market is mature and slow growing. The industry is capital intensive too. (3/15)
Read 15 tweets
27 Jun
Generally don't write about IPOs, but reading a new Red Herring Prospectus is habit. India Pesticides is an agro-chemical company with seemingly mouth-watering financial ratios. But corporate governance markers suggest extreme caution. (1/n)
What set off this inquiry was a disclosure in the RHP, indicating that the Company issued shares at Rs 33.70 to two individuals in February 2021 (4 months ago), who are related to a director. The IPO has recently closed with 23x subscription at Rs 295 per share. (2/n)
These two individuals were collectively alloted 371,380 shares for a consideration of approx Rs 1.25 crore, which would be worth close to Rs 11 crore after the IPO. That's a 775% increase in 4 months or 40,152% ROI annualized, assuming listing date as 05 July. (3/n)
Read 19 tweets
25 Jun
Whenever you consume content and need to draw conclusions from it, refer to Carl Sagan's Baloney Detection Kit. Twelve simple logical fallacies to watch. If you spot these, you are asking the right questions.

Full piece linked at the end👇 (1/13)
(1) ad hominem—Latin for “to the man,” attacking the arguer and not the argument (e.g., The Reverend Dr. Smith is a known religious fundamentalist, so her objections to evolution need not be taken seriously); (2/13)
(2) argument from authority (e.g., Nixon should be re-elected because he has a secret plan to end war in Asia—but because it was secret, there was no way for electorate to evaluate on merits; the argument amounted to trusting because he was President: a mistake); (3/13)
Read 14 tweets
24 Jun
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)
Read 7 tweets
17 Jun
Bull runs in small caps are usually fast and furious, and the cycle repeats itself every 3-4 years. Every time, retail is sold stories of business turnaround and stock charts look fantastic for meteoric wealth creation. For the class of 2020-21, here's a couple of past stars.
These small cap stocks with 30-40 crore market cap went up 23X and 11x in a span of 24 months between April 16 and April 18. The story looked great then, but subsequently once liquidity and interest disappeared, the prices went right back to where they came from.
When in the thick of the action, it can be difficult to keep a level mindset. To keep the narrative believable, these companies are able to massage their top-line and bottom-line for a short period of time to show an imminent turnaround. Note the trends in these financials.
Read 11 tweets
12 Jun
Some thoughts on the PNB Housing Finance (PNBHF) drama around raising INR 4000 crore via preferential issue and ceding management control to Carlyle PE.
On 31 May 21, PNBHF board approved fundraise via preferential issue of shares worth INR 4000 crore to Carlyle PE, General Atlantic and Salisbury Investments (Aditya Puri). The price was fixed at INR 390 per share, INR 6 above the floor under the SEBI ICD regulations. (1/n)
The share capital of PNBHF will increase from 16.82 crore equity shares of INR 10 each, to 27 crore equity shares of INR 10 each. Simple math - 39% dilution on the existing share capital base. That is a huge dilution for promoters and minority shareholders. (2/n)
Read 26 tweets
9 Jun
Decoding the SEBI order against Franklin Templeton (FT). Quoted verbatim, "a fall out of the obsession to run high yield strategies without due regard from concomitant risk".

A thread 👇
FT’s recent issues with its debt schemes are widely known. In this thread, I distill the SEBI order dated 07 June 2021 against Franklin Templeton and outline the primary (alleged) misdemeanours by FT. Find the order here: sebi.gov.in/enforcement/or… (1/n)
Setting the tone of this topic is this statement by the SEBI in its concluding paragraphs. Obsession with yield, strange dealings with debt issuers and complete lack of risk management. The whole nine yards. (2/n)
Read 29 tweets
31 May
The anatomy of Private Equity (PE) funding in a public listed company.

A thread 👇 (1/n)
PG Electroplast Limited, a contract manufacturer of various kinds of electrical goods and appliances, recently announced an 80 crore fund-raise through preferential allotment of equity shares and compulsorily convertible debentures (CCD) to Baring PE and family funds. (2/n)
Such transactions are a great way to understand Private Equity deals in a public setting. Because of disclosure norms for listed companies, everything related to a fund infusion in a listed company is made available to the public. (3/n)
Read 40 tweets
26 May
Britannia Industries undertakes an innovative corporate manoeuvre frequently – issuing bonus debentures. It securitizes part of its reserves as bonds, pays interest at 8% or so for a few years and then gives the securitized amount to shareholders as principal.

A thread 👇 (1/n)
This is not an entirely new concept, in 2015, NTPC issued bonus debentures to all shareholders worth over INR 10,000 crore. These were issued at face value INR 12.50 and 8.49% interest (INR 1.06) per annum. (2/n) Image
What are bonus debentures, though? We have all heard of bonus shares. Companies often convert a part of their reserves into free shares for shareholders. This does nothing more than increase the float and a misplaced sense of increased wealth. (3/n)
Read 29 tweets
24 May
After my shout-out to engage all stakeholders and not just institutional ones, JSPL issues fresh statement directed towards all stakeholders. Image
Hindu Businessline reached out to JSPL over the weekend, who supported the logic of related party loan with an interest rate of 5% being paid to JSPL. Can I get a loan at 5%? Even GoI pays more than 5% on its bonds and it has sovereign rating. Image
Also to be noted is that the loan is proposed to be unsecured, which entails a higher interest rate due to higher risk if JPL goes belly up. JPL has a long term credit rating of BBB, which puts it in the category of debt that good banks will refuse to touch without collateral. Image
Read 5 tweets