Sure, I understand that. But these subsidiaries are not listed in US. Not sure on the role of SEC for unlisted entities. And, I’m looking for these separate financial statements not only from a financial transparency/irregularities perspective but also to have a better understanding of their businesses.
Please share if anyone has the individual subsidiary financial statements.
Searched this thread for the keywords -“telugu”, “politician”, “fugen” and “NRI”, that gave zero leads! Could this helpful VPer, be little bit more forthcoming and post the info here?
Curioser and Curioser! An acquisition in 2013, that can only be FuGen. Well, the game is afoot!
https://www.zaubacorp.com/company/FUGEN-SOLUTIONS-PRIVATE-LIMITED/U72200TN2004PTC054451
Directors of Fugen Solutions Private Limited are Chidambaram Ramanathan and Lakshmanan Saroja.
I think will take the pinch of salt now please.
Fugen seems to be legit based on a LinkedIn search.
Sorry for being so cynical, but I can only say I hope they made some money in the process and good for them that they have political connections!
Thanks @phreakv6 for sharing the sensitive info via message. Great digging!
A sanitized version of the analysis of the info reveals:
There seems to be a slight mix-up in similar looking names of two companies one of which is NJ/NY based, with Hyderabad connections and another which is CA based, with Chennai connections. They seem disjoint entities to me, based on LinkedIn searches.
As an aside, the address does match between the IT company and the Politically connected person’s website.
Are you talking about 8K Miles Software Services Inc, USA (henceforth 8K Miles US)? This was a new company that appears in FY 2010 statements. Page 40 of AR 2010 gives the details as 1000 shares for 100% holding bought by 8K India for a total consideration ₹ 45,220. This includes cash / non-cash etc. There is no mention of IPs acquired in the annual report against this purchase either in Director’s report or in account statements, or notes to accounts.
Ok, maybe. I have founded & owned start-ups in tech with US subsidiaries; done some deals and signed on audited accounts like the MD of 8K Miles India. That should count, I hope 
.
By Promoter you mean 8K Miles US? There is no such mention in the AR 2014 from where I made my original claim. Neither in Director’s Report / MDA nor in accounts as a transaction. Can you share your source?
There is however something amiss about this part (dropping from 100% to 59.72%) in AR 2014 and I post the extract below.
Here you see that the ownership of 8K Miles US is shown as 59.72% in FY 14 and FY 13. The total number of shares in not mentioned!
However in AR 2013 this is what was shown:
I.e. 1000 shares constituting 100% of 8K Miles US shares was held at March 31, 2013 as per AR 2013 and the same is shown as 59.72% at March 31, 2013 as per AR 2014! Both can’t be simultaneously true! Besides, number of shares is not mentioned in AR 2014. Neither I nor any self respecting auditor will risk, signing on such accounts…unless something is worth the risk for the signatories. (The above is difficult to read but I have reproduced the Annual Report exactly as is, sourced from 8K Miles India website.)
To re-confirm before I respond, you are talking 8K Miles US valuation, not 8K miles India, right?
In AR 2017, 8K Miles India increases its stake in 8K Miles US by 1%, and the increase in cost of investments is Rs 42 crores (extract below). Thus 8K Miles India has valued 8K Miles US at Rs 4,200 crores or about $ 600 million (from $ 1000 just 3 years ago in FY 14) and that begs a WOW.
Sure. We are both doing conditional probabilities. Your P (A/B) probably is probability of a justifiable explanation (A) given what is shown is true and honest (B). My P(A/B) is an attempt at probability of true and honest representation (A) given certain ‘facts’ in the annual report (B). My P(A/B) is tending to the middle of the number line!
How can you be sure that what they file in the US is what they show here in the Annual Report?
Just to add some more to the farce that is presented as the Annual Report, let me pull out another extract of the auditor’s report from AR 2014 (page 73).
It says that this auditor (GHG Associates) has audited 8K Miles US!!! An India domiciled audit firm auditing a US domiciled entity!
I suggest you read the enforcement actions of SEC that can be found here to know how many go to jail, on a weekly basis - SEC enforcement news
P.S: All information sourced from Annual Reports posted at this URL https://8kmiles.com/investors/annual-report/ as of 8:30 am IST, today 01 Aug 2018.
Please if you have intellectual understanding of some serious issues then use this Link to SEC to Report Suspected Securities Fraud or Wrongdoing:
https://www.sec.gov/tcr
If there is value erosion but nothing illegal then Discount the PE. For 50%+ growth, anything below 10 is a discount.
BTW, SEC is already investigating ICICI, how many are running to pull their money from the bank?
SEC has no jurisdiction over 8K Miles US or India or anywhere. SEC has over ICICI because ICICI ADRs are listed under its watch.
SEBI is the right jurisdiction. If you are keen, then I can put you or others in touch with lawyers who can help. I hesitate to take anyone’s time for granted.
Well, no, thanks! As long as we were discussing SEC, but SEBI finds Vakrangee OK, whereas that is probably the worst slur, in current fashion, to call any company names.
While digging deeper, it appears like he is actually interested and already running a business of Media/cinema/theater/movie production/film distribution/publications/magazines/radio etc.
Hi @diffsoft,
Explanation of the discrepancy faced by you is as below:
They incorporated 8K Miles Inc in 2011 with $1,000 investment for 1000 shares (This is technically not the valuation of the company but just the incorporation of a company). The reason you see sharp dilution in FY14 is because they acquired 100% stake in Fugen in May-2013 for $7.5 mn and it was done through Share Swap. So they continued to hold 1000 shares but more shares were created and issued to promoters of FuGen.
They have done a lot of acquisitions through cash+stock deals at 8K Miles Inc level.
The parent (8K Miles India) only invested in 2016 and 2017 and that is where you see # of shares held by parent increasing. Also, in 2017, “8K Miles India” business touched a peak valuation of ~2800 Cr and, I am assuming, since investment in “8K Miles Inc” was a negotiated transaction between minority shareholders of “8k Miles Inc” (promoters of acquired company) and Suresh, this got settled at a substantial premium valuation.
@h_nazkani Good analysis! I quote you here:
Explanation of the discrepancies faced by @diffsoft is as below:
They incorporated 8K Miles Inc in 2011 with $1,000 investment for 1000 shares (This is technically not the valuation of the company but just the incorporation of a company).
Duh, should have been faster to latch onto this!
The reason you see sharp dilution in FY14 is because they acquired 100% stake in Fugen in May-2013 for $7.5 mn and it was done through Share Swap. So they continued to hold 1000 shares but more shares were created and issued to promoters of FuGen.
They have done a lot of acquisitions through cash+stock deals at 8K Miles Inc level.
The parent (8K Miles India) only invested in 2016 and 2017 and that is where you see # of shares held by parent increasing.
Very helpful explanation!
Also, in 2017, “8K Miles India” business touched a peak valuation of ~2800 Cr and, I am assuming, since investment in “8K Miles Inc” was a negotiated transaction between minority shareholders of “8k Miles Inc” (promoters of acquired company) and Suresh, this got settled at a substantial premium valuation.
Quite helpful explanation!
diffsoft
For those who are invested,
Can you convince yourselves a business that was valued at $ 1,000 in FY 2010 and fully owned by 8K Miles Software Services Limited, can suddenly finds its ownership reduced to 59.72% in FY 14 with no explanation? And, subsequently, in FY 17 the same can get valued at $ 600 million for an additional 1% stake from the same parent that once owned it fully?
Sources: AR 10, 14, 17
In the same report, the auditors say - “We have not audited the financial statements of foreign subsidiaries.” The auditors are a complete joke. They have no clue as to what they can audit and what they have audited.
Thank you for attempting to explain the discrepancy. Overall for explanations to be valid, they need to be rooted in purportedly authentic facts that are independent and verifiable. Which is why we have independent auditors for instance and an accountable annual report filed with the public at large.
The explanation provided by you is, as Daniel Kahneman would say, a narrative that can hold events together so the story makes sense. It is however not rooted in facts. For instance,
After looking at the books, even if we loosen up good sense to say there is value in 8K Miles US beyond its incorporation - tangible or intangible, it has to be seen in the books one way or the other. The Consolidated statements show Goodwill against Rs 11 crore of Mentormind US. Which throws up another question, but let that be. So where is the value?
This is a little fuzzy for me to understand, you can break it up and show me the figures and sources.
Just to let you know in the Dec conf call the MD mentioned that Could Era was the biggest competitor. If so comparing Cloud Era’s statements with 8K Miles will gives an idea of comparative economics (uploading here) annual report 012018.pdf (923.3 KB). Check out page 52 to see how tough the business is in terms of profit even though it is growing by 50% annually
I am not sure if you are trying to build support for one point of view vs another, acting as a cheer leader. I don’t want to play that game. But I do understand that there are many pressures that anyone invested may be facing, including the fact that just owning the stock, being heavily invested makes us very emotional. Losses hurt our self esteem badly, especially if we have built our reputation on it. Who knows who all we recommend the stock to, and it matters what they think of us. Our own expectations get shattered with the fear of hearing something bad about the stock. I have been through the emotional roller coaster ride quite often. So I don’t want to be vain enough to impose my professed analytical edifice on anyone’s emotions. I wanted to point out some glaring gaps and if the community can benefit, that’s good and if I can learn something even better.
Please do not play any games that you do not want, I am not sure what you are trying also but it can also be labeled as fear-mongering! Thanks for the understanding.
I could see h_nazkani’s analysis, I liked it, I posted it after asking him to not delete it!
Whatever be the source, I had some information and I shared it.
I could not unsee what I had seen 
Nothing more, nothing less.
Welcome @Mantri on this board.
@all, let’s welcome Amit on this thread. I am sure a lot of you are already aware of his forensic/investigative research on Kitex, Vakrangee, Manpasand.
Hope to see many more quality/rigorous discussions on 8K MILES as well.
I agree with you here. Inflated growth and economics in 8KMILES are known issues and has been pointed out by some of us in previous posts. high unbilled revenues (sign of inflated growth), high intangible assets (sign of opex being camouflaged as Capex and thus inflated economics), computer costs of Rs. 10K per employee (sign of managed economics) and many others indicators points to managed/inflated growth and economics historically.
Moving to the original concern of yours on goodwill/valuation/value creation in 8K MILES US:
It was actually the analysis of facts which led to the narrative. Let me share the facts in the next post and you can decide how much comfort it gives you.
Cloud Era’s losses are more (~ $ 380 million) than their revenues ( ~ $ 300 million) . These are accounting losses…in other words the money poured by the leader is mind boggling. 8K Miles US on the other hand shows unbelievable profits and the issues as you quote above exist, then that should be worrying for passive investors.
Sure and thanks. I may be on the road and unable to respond soon, but I appreciate your efforts.
**1) Reported Acquisitions/Investments/value creation in 8K Miles Inc.: Timelines **
Table-1: Historical Share Capital, Non-Current Investments, share holding (8K Miles US):
Table-2: Timelines of Acquisitions under 8K Miles US:
Source: Annual Reports (2011-2017)
Table-3: Part of Subsidiary Financials (as on Mar-2017)
Source: AR-2017
8K Miles US:
FY-2014: Fugen Acquisition (refer AR snapshot below) and acquisition value shared($7.5 mn) shared on BSE filing.
Is it getting reflected in the books of 8K Miles US? - yes. Refer table-3 above.
source: AR-2014
FY-2015: Acquisition of SERJ Solutions, Mindprint.
Is it getting reflected in the books of 8K Miles US ? - yes. Refer table-3 above.
source: AR-2015
FY-2016: Acquisition of Cintel and NexAge mentioned in 2016 AR. Is it getting reflected in the books of 8K Miles US ? - yes. Refer table-3 above.
How was the cash component funded ? - by promoter infusing capital.
2) Why the subsidiary (8K Miles US) was valued at Rs. 4,200 Cr for investment by Parent 8K Miles India?
In FY16/17, 8K Miles India’s valuation oscillated between Rs. 2,500-Rs. 2,700 for quite sometime (here). And, 8K India (parent) invested Rs. 42 Cr in 8K US (subsidiary) in FY17 (Table-1). Some of the promoters of the acquired companies were also the shareholders at 8K US.
If I am one of those promoters, I would argue that 8K Miles India currently (in FY17) is getting a low valuation of Rs. ~2,700 Cr because of significant holding company discount/taxation impact of US subsidiary etc. and 8K Miles US should be valued significantly higher. Once you think of it as a negotiated transaction between Suresh and other shareholders of 8K Miles US (promoters of acquired companies), the valuation given to 8K Miles US (subsidiary) was not at a significant premium than what market was already giving to 8K Miles India (holding company).
Is there any link available where the MD claimed Cloudera as the competitor?
My understanding is that 8K and cloudera have different business. 8K is service oriented while cloudera is cloud platform provider.
I think we need to focus on what we are trying to find here, lot of question are already answered in the thread.
If someone do not trust audited US number, no one can argue. Nothing can be done to convince such a person.
Are revenues real?
Since I trust audited numbers of the company, I trust revenues.
Cloudera is competitor and is making losses, how 8K is making profits?
Cloudera is also making profits at Gross level. It is the research expenses and selling, general & administrative expenses which is pulling bottom line down. 8K is making profit by capitalizing some of the R&D expense and controlling it’s selling, general & administrative expenses by sending economical labor from India.
$1 = 69 INR
All figure in crores.
Exactly… Comparing cloudera with 8k is like comparing Microsoft with Infosys…cloudera is a product Co which will make big losses till it reaches scale while 8k is a services Co… Which can take projects which can generate profits…
