Securekloud Technologies Ltd (was 8k Miles Software Ltd), Cloud Computing

I am not agreed with the believe that this company is cooking its books as Delloitte is auditing at the time when all the audit houses are going through tough time.

Disc: invested

Tomorrow, if public go by headline - “8K Miles FY18 Gross Revenues grew 62% YoY and EBITDA up by 61% YoY” https://www.bseindia.com/xml-data/corpfiling/AttachLive/6b2cd6be-9533-4b24-aad7-b7c0353629a9.pdf - It will be upper circuit.
BUT
If public go by Balance sheet - it will be lower circuit !!

No main auditor has not audited the subsidiaries.

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The last para itself clearly states that Deloitte (firmly) believes that the audit report of the subsidiaries by other auditors are reliable. Hope that is right.
Disc: invested

“BELIEVE” but not verified !!

Disc: Not invested and not planned to enter at present!

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These subsidiaries are based mostly in USA. Auditors in US would have audited these companies.

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And hope auditing standard in USA may be higher and reliable.

Dear Sir,

I think, you are trying to fit your explanation according to the outcome which you have already decided. Please explain me: How you have reached to sweeping generalization that company is cooking its book based on 4 points mentioned by you? I am not claiming that they are not, but please try to find out cogent and convincing reason by digging deeper, don’t be in hurry!

  1. How you have concluded from this that receivable almost doubled YOY whiles sales only increased by around 60%.; so company is cooking its book? Am I mistaken in telling that it’s quite logical and possible. Just suppose: previous year my sale was 100 cr and receivable was 60 cr and this year my sale was 160 cr and trade recivable is 60 cr. So, in balance sheet it will be shown as 120 cr. Right? Please correct me if I am wrong.

  2. Point 2 also does not substantiate your conclusion that books are cooked.

  3. Borrowing up by about 40 cr also does not substantiate your claim.

  4. Yes, I agree that Intangible assets are looking inflated and done to cover the weakness in the balance sheet. But this thing, you can always expect from a intellectual property driven company. It is upto investors to decide that what they are telling is really worth or not. This decision even auditor can’t take because he does not understand the value of these kind of intellecutal intangible asset. It is like patent in pharma industry: auditor has to give a value based on a hypothetical calculation. I don’t understand their technology, so can’t predict that what could be potential value. This was the reason that pharma company were stoped by government from capatlising their R&D expense in the balance sheet, so most of them have carved or more appropriately forced to carve R&D unit and get it listed separately.

Disclosure: Not Invested but tracking because of good valuation.

Thanks!

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My understanding of this is different.

Suppose in the first year, your receivable is 60 crore. In course of second year, you managed to recover 50 crore of that. In the second year, your receivable is 60 crore. So trade receivable at the end of second year should be 70 crore not 120 crore. Out of this, 10 crore is already more than one year old and almost irrecoverable. Most probably, you would have to write off that some day.

I am just learning to read balance sheets. So please correct me if I am wrong.

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Two contrasting statements.Can someone please help me understand

@Gaurav_Agarwal @phreakv6

Audited the consolidated results, but not the financials of underlying subsidiaries. And this is absolutely normal.

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such a generalization is not useful. i’m not 100% confident there’s nothing wrong here, but yet to see any major signs of fraud or wrongdoing.
people usually latch on to such negative inferences, without understanding or validating if those are valid or not.

yes, receivables doubling is concerning. but other observations are not.
i have checked credentials of senior CxOs of acquired companies and history of those companies. found those to be real businesses, with real capabilities.
i did not find signs that these were dummy fake transactions to siphon away cash from books.
also, would the company dare to publish real names of clients and projects that can easily be verified by making a few phone calls? one of their major customers (Sutter Health) is my primary physician in the US. one of the best in bay area. and so are most other clients that they have shared on their website and in corp announcements.

this seems to be case of pure technologists not able to manage such huge growth in scale. being old pals, partners, there usually is tendency not to bring in more capable professionals to take care of core functions. and it is already paying heavy price.
CFO Ramani has been selling stake, and i won’t be surprised if he steps down and new CFO gets in.

discl: holding it for more than a year.

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@rajdori If you can talk to few of 8K clients that will great help to community. At least people can than agree that revenues are real.

I think the biggest reason for peoples doubt in addition to occasional foolishness of the company, is that almost all of the companies business is in US. Also, with this kind of growth the stock is languishing at very cheap price.

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I am visiting Chennai over this weekend and planning to visit the office at Chennai.
Any of the people in this forum,willing to accompany me?
We can also come up with a list of questions to be answered by the company

Here is an interesting triangulation.

I was checking the credentials of Infobeans in LinkedIn. The NSE Emerge company had 756 employees and Rs96 crores turnover for the latest year end. LinkedIn had 746 employees registered as employees for this company. Very close as we would expect as software engineers are obviously tech savvy and would be expected to be in LinkedIn.

out of curiousity, I saw this detail for 8k miles which had a turnover of around 800cr for the latest yearend. There were only 285 employees registered in LinkedIn. Interesting!

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Great initiative @Manojlion. Please keep us posted. It will be great, if you could take some snaps of their office and paste it on the forum.

@SlownSteady Why just two companies? You should compare it with 5-7 companies to reach some kind of conclusion.

What are the credentials of Infobeans? Their per employee revenue is Rs. 12 Lacs only, which is quite low by any standards. What kind of salary this company must be paying to its employee?

@Gaurav_Agarwal, I just shared what I found. I did not share any inference based on this on either companies. You are open to compare such details with any number of companies you like. I do not hold 8k miles so my interest is only limited.

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I can not see June Q1 results. When the results for Q1 will be announced ? It has only consolidated results till march 2018.

Q1 results are not out yet. Neither is any news about the “buyback of shares”

@Gaurav_Agarwal, I just now compared to top 4 Indian IT companies (TCS, Infy, HCL, Wipro) Figures are very close to the number of employees for all of them in LinkedIn

Surprisingly, the company, which used to pride itself in Q-o-Q growth (watch previous interviews of Suresh with CNBC etc.), didn’t bother to provide quarterly financials (not even provisional). Also, it removed any reference to Q-o-Q growth/results in its press release as well (for the first time).
Why ?
Reason might be below:

Looking at few line items
1) Sales: Company has registered a Q-o-Q degrowth in Q4-2018. Interestingly, company started experiencing deceleration in growth from Sep-2017 (exactly the quarter when Deloitte was appointed) and now within 2 quarters has registered -ve growth from a 16%-20% of Q-o-Q growth.

2) Also, Q4-18 sales has come after recording a receivables of 104 days (historical normal being 80+ days).

This might mean:

  • trying to artificially push sales up to hide actual growth deceleration (i.e. the actual growth deceleration might be worse than -2%) or
  • new business is coming at significantly higher credit days (e.g. 4 months+) - losing its bargaining power/ no more low hanging fruits/ getting in government contracts.

Either way, company is loosing its business/economic strenth !!

3) Now, for a sales de-growth, how can one record quarterly profit growth ? By booking “other income” of Rs. 7 Crores per quarter (historically Rs. 1 Cr). Interestingly cash balance is at all time low but “other income” is at all time high !!

4) One more reason as to why quarterly profit looks inflated is because Dep. & Amortization expenses have been slashed to half !!! So we have a situation now where Assets on the BS (i.e. intangible assets like R&D/Product development, goodwill) are ever increasing but Depreciation is down !!!

5) Another puzzling piece is when one looks at Salary heads in quarterly & yearly financial: Salary Expenses for the full year is Rs. 236 Crores while the same for Q1,Q2,Q3 combined together is Rs. 310 Crores. So company has recorded - 75 Cr (-ve 75 Crores) salary in this quarter !! But simultaneously, other expenses have gone up to compensate partially for this.
When one looks at Note # 9, it appears that most of the employees have always been on the rolls of the clients (contractual resources). And company has so far been wrongly reporting them on its own books (probably auditor didn’t allow this time).
Business wise, this means that a major portion of company’s business is “body shopping” which people have suspected for long !! :
image

6) Company reported Rs. 64 lakhs of Computers & Accessories in FY17 Fixed Assets for an employee base of 625. Which means Rs. 10K worth of computers/laptops per employee for a company which boasts of working in AI/Machine Learning/IOT etc. !!!
This only provides further credence to the point #5 above that majority of the employees claimed by the company are not on the rolls of the company.

7) Now, coming to the cash balance on the books of the company. Company has historically kept significant portion of the quarterly balance (and ever increasing %age) as cash on its books.

Now in Q4-2018, if you are a CEO of a company which has Rs. 11 Cr of cash/bank balances and increasing debt, worsening receivable situation with estimated Rs. 150 Cr of opex for the next quarter, it should send chills down your spine.

While forgetting the BS (which has always been messy), Q4-2018 has actually raised questions on P&L, growth and the inherent business itself.
Company seems to be loosing its business strength (if there was any) OR is cleaning up its past sins of accounting OR is still playing with its books - that’s how it looks like for now.

Disclosure: Traded in/out in the past.

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