Its up to an individual how one would define the term ‘sustainability’. For me the current operational challenges poses major risk to business sustainability and for me it does not make sense if the sustainability is a make or break issue just on account of one contract. Management capability has been put on question mark for me.
The management has been maintaining that they will be getting new contracts but have not been able to secure any major breakthrough over last one year.
Punjab contract we all know they need to recover Rs 145 cr from the government. If they fail, which in my belief looks quite certain unless they get into big legal battle which they prefer not to enter given their eye on future such contract’ the liquidity will be a major challenge.
The company defaulting on Kendra Employees salaries, which they should not even though they are yet to recover money from the government. This for me is a big no-no, as salary is the last thing that management would touch in event of crisis. This showcase the management intent and approach to business. For me its bad on the governance.
The management still maintain, which is totally incorrect, that BLS has surplus cash and can repay debt and non-receipt from government is not an issue. In real sense this money is sitting on balance sheet of overseas subsidiaries and cannot be repatriated unless they agrees to pay tax on it. So in such case, for repatriating Rs 100 crore to repay the debt, BLS has to repatriate to Indian entity Rs 120 Cr (including Rs 20 cr of tax). Why any management will agree for that.
Now another carrot the Management has offered is that they are evaluating M&A opportunity. Where is the money available for that. Available surplus cash, they have been saying is going to care of debt.
One single contract cannot make or break the investment thesis. But for me the way the Management came up to address the issues one after the other, is the real cause of liquidation of my investment.
Remember, to continue as a long term investor, you also need to track major developments impacting operations of the company of your choice and you should be UPFRONT and EXTREMELY RUTHLESS in taking decisions to hold or sell. We all knew that the Punjab contract has been running into problem since last June’17, but whenever we asked about the same to the Management they ignored the question and says everything is running fine. It has not happened all of a sudden.
I carry maximum 10 to 12 stocks in my portfolio and don’t mind shuffling any scrips if any event impact its operation. But that’s my call. The investment style is highly personalized and can differ person-to-person.
REMEMBER TO INVEST IN GOOD MANAGEMENT. A GOOD BUSINESS WITH BAD MANAGEMENT CAN SCREW UP THE BUSINESS, BUT A MODERATE TO GOOD BUSINESS WITH GOOD MANAGEMENT CAN DO WONDERS FOR YOUR PORTFOLIO.