It appears that Auditors can be now held liable for certain type of corporate governance issues in the company. Resigning appears to be the best way to play it safe instead of being caught and held liable. For those who are resigning citing “preoccupation in other assignments” - why didn’t they think of this when they accepted the assignment in the first place?
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Issue is that now new body i.e. NFRA will be in place by December 18 and its members comprises of IAS etc and there will be no CA in the governing body.It will lead to independent enquiry and stringent punishment will be given to auditors in case of connivance with promoters/management. Hence, auditors are resigning wherever they are uncomfortable with books of accounts. Genuine reason can also be there for resignation.
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An advisory service- Equity Master has given its sell call on the stock just few minutes ago(After market hrs), siting Corporate governance issue, low transparency(unwillingness from the management side to meet any analysts) in recent times and lastly due to management miss guidance on qtrly results every time(Too much overpromis and very much under deliver). Tomorrow stock will defiantly have impact negatively. All the points cited by them are true as far as we all know, Just posting this for information, might help someone.(Have learnt a lot from this thread-kitex specially- thanx for all the great informative posts till now in this thread)…my 2 cents
Do you think a global audit firm will take up an audit with our adequate due diligence? - from my past experience the answer is a clear NO. While this will not fix all governance issues surrounding Kitex - i would consider the latest announcement to to be an action in the right direction.
Disclosure: Invested in Kitex and added to the position yesterday and will add on when they eventually hire a quality CFO.
can you kinldy post the details of equity master and his thesis
kizhakkambalam (promoter place) is fully governed by this company owners through their CSR which brings in a lot of objections/hate form ruling party and other parties from local bodies for them. certainly, they do a lot of good things for the locals there but if it brings hate from govt local authorities/parties, run such manufacturing business will face governance issues…
Sorry I cant, because I dont want to break their code of conduct by passing their report forward, but I have already summarized and outlined what was in it. They said that management took interest to meet analysts n all till 1 year back, but from last year, they are trying to avoid analysts and are not sharing adequate information with the analyst community and are not responding with positive/adequate response. Hence they told to sell the stock siting low transpiration and corporate governance issue might be present-as lots of thing going on at one time, and management dont want to clarify or even meet them at such hard time.
Thats all given in the report.
Also please do your due-diligence, I have posted this only as a information purpose, dont panic or react, just act as per our knowledge. In the report they are not sure of anything(corporate governance issue), they are just suspecting of one due to low transparency.
Regards
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When the share price drops as dramatically as it has done for kitex its more a reflection of investor exuberance than anything else. Mr Sabu is an eccentric person yes but the more logical explanation in my view is that it was an overvalued stock in a business where the addressable market is not that big.
The capital that kitex has to deploy has now grown to 500cr in an industry where the total market size is not more than 1000cr. Clearly, when resources available for deployment approach the market potential - returns will suffer as the only way forward would be to decrease margins to maintain volume momentum commensurate with all that money that has to be deployed.
The combination of both these factors has worked to decrease the returns of the business and hence the valuations.
In my view, its a good co with good cash flows but significantly less headroom to grow than before. They should return excess capital to investors in one way or the other , that being the logical path. I hope they do.
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Not interacting …This absolutely no reason …Try approaching TVS Tyres …they behave in same way. I have tried to call them and they were willing to talk.
I have written in post above that Amit Mantri was also wrong on margins front. People have not done detail due deligence are using very superficial booking knowledge to tackle this issue. As shares are falling people
are listening to them.
I have run objective questions and answer to fraud or anything else is not comming except that people are worried about cash which was there on the books and there was no good reason. BTW as person outisde india i keep things in dollars as i know India rupee will keep depreciating . Earn more than FDs in India.
Need bit deeper analysis , on ground check, channel check . Time for this community to show it strength rather than chatter on news channel , copy pasting what others have said.
BTW on not answering questions try talking to TVS tyres analysts relations . I could reach Kitex guys and they were ready to talk. They was asked to attend AGM and said they will explain. Please let me know if some one is attending.
Disc: Biased invested 6 % of NW. sitting at 50% loss .
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I know that thats not the exact reason,Many companies behave in same way I know, but there is a difference between Not responding from the beginning and not responding in crucial time(not for stock but for the financials).He was very comfortable 2years ago and was very much available for all any time and now suddenly he is soo busy?
Do you have answer why was Mr Sabu giving baseless guidance’s?(he was aware of the loss in Q4) but what he told in the interview, we all know. I am not telling that he is wrong or right, I am just pointing that the story here has changed a lot in this 6-8months. And there is something going in his mind which we might dont know. And can you please ask the management why the previous auditors were unwilling, what was the reason. And please post their reply here for the benefit of all.
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- CSR Spending : “The CSR norms require companies with at least Rs 5 crore net profit or Rs 1,000 crore turnover or Rs 500 crore in net worth to spend at least 2 per cent of their 3-year average annual net profit on CSR activities in each financial year"
3 year avg of Net profit = 9155.27 and 2% of Avg NP = 1. 83 Cr (?? - as per auditors note its 3.03 Cr ) . Kitex spent a whopping 12 Cr 75 Lakhs almost 10 times and this bumped up the other expenses
*
On the same note , The dividend payed out was only 8.55 Cr
Does this say who gets the priority
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Knowing promoters political ambitions, this spend is clearly much beyond normal plain vanilla CSR.
More than 40% of sales in FY18 are to associate company - Kitex USA LLC
85 Cr out of 251 Cr sales is accounts receivable
How to interpret this?
Even if Kitex USA LLC has managed to sell Rs 150 Crs worth merchandise, that is a substantial achievement.
Receivables of 85 Crs from Kitex USA LLC is also worrisome
Kitex LLC is acting as wholesaler to Kitex Garment (like Gerber , Carter whole sale business) . Orders are outed through them .
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I had wanted to buy Kitex Garments for a long time. It looked, sounded and behaved like a well managed ethical company. I think it still is. Nonetheless there are two concerns, apparently unrelated but their confluence can be extremely risky for the shareholders.
- The huge amount of cash - real or imaginary (as in the case of Satyam) - in the books.
- The political ambitions of the promoter.
For ethical promoters both both of these factors looked at independently does not raise any red flags. Infosys carried thousands of crores of cash for a long time without anyone dipping into the cookie jar.
But Mr. Sabu mentioned about investing (or spending) Rs. 300 crores in his village over the next few years. Now this is a dangerous desire and prone to many temptations. If Mr. Sabu can distribute majority of cash on the books to the shareholders (he will also get a good chunk) and then work on his political ambitions it will be beneficial for his shareholders as well as for his village which he wants to develop.
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I still have the same doubt. If their is really something wrong in the company,why the promoters bought 9.25 crores rs worth of share that too at price of approx 250 in last 6 months. Will they spend 9 crore of rs just to fool the investors ? Would appreciate if someone can throw light on this. Thanks.
Disc : Exited at 120 after having loss of 70%. Will reenter if conviction builds
Some was trying to make point that Sabu spent 9 crores acquiring shares from open market when stock was higher. So will he spend 9 cr if he is doing fraud ( this point may not be true always ) but he said he bought as stock was cheap.
Q4 Toyrus filled for bankruptcy i think everyone in US thought some will buy them and save baby r us. Infact Toy r us Canada which was profitable was bought by Prem Watsa. So he is write that he could not anticipate . I went through all Creditors conference calls including toy companies all had same issue .
He always talks different numbers when he talks to media He is not organized lair like other professional CFOs who will not talk unless they have paper in front of him. He always mixes KCL and KGL together .
Link on Sabu interview on explanation ( cannot take on face value ) .
Not sure how much it’s relevant here but in the report, Valuequest has slightly increased their holding (even if it’s a small amount) over the last year and have not yet exited. I am sure the professor would also be keeping a keen eye on this one.
(Am at a 65% loss on 2% of my portfolio)
Anna group is a very reputed business family in Kerala and I do not think Mr. Sabu has vicious intent. But his political ambition and the money in the bank may tempt him to take decisions which may not be aligned with the outsiders of the company. I always feel money in the bank is a very tempting thing and it can cause otherwise rational people to behave unreasonably. A lot of money in bank can feed your hubris and they may end up buying expensive things which may not be beneficial to the company. We know what Vishal Sikka did with Panaya acquisition.
When I was a novice I used to like companies with lot of cash on the books. I thought there was value in that. I am still a novice but a more informed one and now I like companies which treat cash like hot potato and only worthy to be distributed among the shareholders. Forgive my hyperbole but generally I like companies which do not hoard cash.
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