Beware of Frauds

I wanted investors to know about a strange company called 'Parekh Aluminex'. I had told my wife in 2007-2008 how can a company keep growing its revenue, debt and profits all at a steady pace of 30% per year, year after year forever. I wanted to dig deep to find the recent 95% drop in price in company's shares and then came across the article "The curious case of Parekh Aluminex" which saved all my efforts of writing. Please go ahead and read it.

Another one that I found was 'Hanung Toys and Textiles'. There were people recommending a buy on this company here and here. The company's share price has corrected by more than 90%.

Another ones that can be added to the list are 'Opto Circuits' and 'KS Oils' but not from fraud perspective and more from wrong management perspective.

The amount of debt that just these these companies had amount to around INR 5000+ crore and there are many such unlisted companies. God save the indian banking sector.

Update: I might add companies like Kwality in near future as my mother-in-law called me up to buy the company and when I looked at the financials, it feels like another Parekh Aluminex.

Why is this company so richly valued?

Recently, there was a change in BSE500 Index. A new company Shree Global Tradefin Limited was introduced in BSE500 Index. I was surprised, since I had never heard the name of the company. After looking at some of the data, I found that the company's market cap is around INR 5000 Crore, i.e. $1.1 billion. That's more than that of BEML or Britannia. The company's revenue last year was around INR 310 Crore, i.e. $70 million. and profits are almost NIL. Till FY2005, the company didn't have any revenue at all. The company's total revenue was less than INR 100 Crore till FY2007. The company in the last ten years haven't paid any dividend. The company's website is still under construction.

The company's equity capital till March 2005 was INR 205.81 Crore consisting of 20.581 Crore shares of INR 10 each. In FY2006, the company reduced its share capital by half and it became INR 102.905 Crore consisting of 20.581 Crore shares of INR 5 each. Since the share price is around INR 240, the market cap comes to INR 5000 Crore.

Strange case!!! Is SEBI listening?

Where are the lakhs?

I am talking about the missing lakhs from the results of Atul. The company has from the last three quarters started omitting lakhs from every item of its result and reporting everything in rounded "Crore" figure. One more company that follows the same practice is Infosys which started the practice from SEP 05 Quarter. It is surprising suddenly the company started doing business in round figures of "Crores" when the company's total yearly revenue is just around INR 1200 Crore. Infosys started doing it when its revenue went above INR 2000 Crore quarterly.

Ch** bhi main, Kotwal bhi main

I was reading the list of companies trading at a big discount to their book value, and found one of them interesting. The company's name is "Priya Dyes and Chemicals". I looked at the annual results of the company and found that this might be a turnaround case in chemicals sector. I went to company's website and started reading at its annual reports. What I found in their "Auditor's report" section was that the name of the auditor is "M/s. M. L. Bhuwania & Co." and the name of the promoter is "SHRI A. K. BHUWANIA". The other surprise was that the company's name has changed to "Priya Ltd" and the biggest segment of sales for the company is "electronics items", "PCs", "thin clients", etc... The company was making losses in the year 2001-2002 and had accumulated losses till some time back. Don't know if the title fits with this company.

Why so much inventories?

I was recently looking at the list of highest dividend paying companies and found an interesting company named Zodiac-JRD-MKJ which, according to the finished products list on moneycontrol, is a jeweler. The company's balance sheet for FY09 shows that the company had an inventory of INR 38.18 Crore and Net Current Assets of INR 43.09 Crore. This is surprising since the company's net sales in FY09 was INR 17.73 Crore. That means company is having inventory of 2 years and working capital is two times that of sales. The total market capitalization of the company is just INR 12.37 Crore.

Why this company is hesitant in paying dividend?

The company I am talking about is "Compact Disc India".

The company first calls for a meeting on February 20, 2006 to consider dividend. The decision to recommend 10% interim dividend was differed in the meeting till the next meeting on 23 March 2006. The meeting on 23 March 2006 was postponed. That meeting never happens.

The company again called for a meeting on 30 May 2008 to consider dividend. The company forgot to inform about any decision taken on dividend in the outcome of the meeting. The updates were communicated to the exchange that the dividend will be discussed in AGM. The company again called for a meeting on 22 August to consider dividend. The board did declare a dividend along with a Shareholders welfare fund worth 50 lacs which will provide interest free loans for personal use to those shareholders who are holding the shares of the company for last 10 years. There was no mention of the word dividend till the next year.

The company called for a meeting on 20 January 2009 to declare interim dividend. The meeting was adjourned on 16 February 2009 and never happened.

The company called for declaration of dividend again on 28 August 2009. The company declared a dividend in the meeting on 4 September 2009. When the AGM was held, the company deferred the declaration of dividend as "in Agreement executed by the company with its bank (lender), the company has to take prior approval of the bank before declaring the dividend." The company again issued a clarification that the dividend declaration was deferred.

Now the company has called again for an EGM to be held on 30 November to declare a dividend in a notice given on 24 October 2009.

Why is this company valued so much?

The company I am talking about is Cals Refineries. The company has a total equity capital of INR 794 Crore divided into 794 Crore shares of face value INR 1. The current price of the share is INR 0.48 making the complete market cap of the company at INR 381 Crore. The company doesn't have any earnings over the last 5 years. The company split its shares in June 2008 from face value INR 10 to INR 1. Till Sept 2007, the company's equity capital was just INR 5.0281 Crore made up of 50,28,100 shares of face value INR 10. The company had a GDR issue in December 2007 of USD 200 million (approximately INR 800 Crore at that time) at a price of $25.38 (equivalent to INR 1000 at that time) while the share on BSE was trading at INR 2.2 till May 2007. The company again wants to raise money through GDR.

The promoters hold only 2.17%. The company's 94.96% stake is in GDR held by The Bank of Newyork Mellon DR. Strange case.