Lasa Supergenerics Limited

(Manish Vachhani) #460

Refrain from posting one liners which does not add value to the fundamental stock analysis.

(lastgenesis) #461

I am not invested in this stock but have been following this thread, with all due respect to the people invested in this stock people seem to be giving this Omkar fellow as much latitude as the national media gives to Rahul Gandhi!!

There are tons of red flags here, the suspect demerger & promoter sale issues have been very well summarised by @phreakv6 & others so wont go into that but i see more basic problems in the story.

Firstly this is supposedly an animal feeds API company, as a category that should not be a commodity play. But if it is genuinely doing some value add products it should be having the power to pass on prices, which as per the promoter in last concall is clearly not the case. I know chemical prices are volatile but not to the extent of 200-300% in a quarter, if there is a 30-40% move it is a huge thing which will wipe out businesses since chemicals is a low margin industry (there may be exceptions but I am referring to the norm). If someone says prices have moved by 200% in 2-3 months, he is IMO probably lying.

b) Intent on debt reduction while increasing WC loans. A CEO saying WC is not debt is beyond belief!! Pretty much the “Cognac sharab nahin hoti” category ;-).

c) going in for acquisitions - of which details are not disclosed - when you have just started a plant significantly expanding your capacity after huge time overruns. Surest way to pile up debt further, which is in any case now certain since the rights issue is not happening.

In any case if this is so much of a one man show like many investors keep saying, one person taking on so much at one go is also not a comforting thought. With all due respect allocating like 10-20% of portfolio to this company is a huge huge leap of faith which this person has done nothing to deserve (till now atleast).

Not giving any recommendations but as an investor whatever profit or loss one may be sitting on, one needs to look at a company objectively. When the primary reason for investing is faith in management and that same management is continuously doing the opposite of what they claim, tough to see hope in future…

(paresh.sarjani1) #462

I had attended the concall. Prices are on contract basis as per MD. Prices can be passed on to customers with some time delay is what he said

(ragsingh0305) #463

The kind of qualities with respect to business and management that you are expecting is more of 10000 crore mcap company than a 100 crore mcap company.

Probably, we need to see the things in perspective, we are talking about a company which is 6-7 years old.
The CEO might not have great expertise in interacting with the market, but does he has good understanding of the business, in my opinion “yes”.
From a current mcap of 100 cr, can it go to 300-400 cr…“possible” reasonable degree of probability. Annual sales of 240-250 crore, with limited competition, potential EBITDA margin of 16%-20% range, currently going through rough patch due to increase in RM costs. The company can pass on the costs, if RM persistently remains high, but likely to take a hit for a quarter or two. Currently, it has scalable capacity with limited capex need. Possibly better operating leverage in the next few years.
Can the company further fall 30%-40% from here, “Unlikely”. The current debt of 90 cr is manageable and the acquisition which company did was small and debt only went up modestly because of the acquisition.

My understanding on demerger- it was done to carve out a growing and profitable entity from loss making entitiy. The owner has not sold anything and has been quite transparent with respect to shareholding details.
Though I agree with your point on reliance on one person but again it’s a company at a nascent stage, and probably can through some good managers once it stabilizes. To give an analogy from sports - Once a team start performing and winning, the mediocre players start looking like good players.

I might be wrong in assessing the company’s future prospects, but i can summarize my viewpoint on this company from the current level by saying - "Head I win and tail I don’t loose much " - a quote borrowed from high profile investor

(paresh.sarjani1) #464

Perfectly quoted. Even my rationale is on the same part that if Promoter has not sold even a single share , why should I sell.

(lastgenesis) #465

@paresh.sarjani1 @ragsingh0305
Just to be the devil’s advocate (I am not saying these are the actual facts) look at this scenario. The father is selling shares in the son’s company, the son is selling shares in the father’s company (this is an assumption not tracking OSCL), the Herlekar family as a whole is making money while in each respective case the retail investor is holding the loss on the books. 1 year later the father and the son settle their “dispute” and they are probably a good 15-20 cr richer even if stock price remains what it is today.

I have been a part of 3 bear market cycles in my life and one thing I have learnt is to take things promoters say with a very large pinch of salt and always verify. Trust in management should have a very high hurdle rate (though once earned do give them a long rope). I get the distinct impression faith is being granted very cheaply here.

(ashutosh_shah) #466

There is something not good with the company. Whole time Director and Compliance Officer both resigned, earlier The CFO resigned. There was no reason given for their resignation.
There is something very wrong with the company.

Disc:- Have invested earlier and got out at 190-200.

(Vivek) #467

Personally things are not good in my view , had been invested and exited around 75 levels as I lost hope in management, prime reason for selling was I understood that these are definitely not the companies I need in portfolio to get a good sleep. Hopefully retail doesn’t burn them, if your allocation or investment is less it might look good in such companies but in a large portfolio with high values allocating in these kinds of companies is very scary.and I identified myself as not fit to ride such roller coaster rides

(Shyam) #468

There are few points that I am looking for clarification. Would be really helpful if someone can answer or add more questions.

  • People such as CFO, compliance officer etc. resigning can be a big red flag. But, given LASA is fairly young, can this be looked at as a more routine shuffling of key personnel? I was not able to locate any of the names in LinkedIn.
  • Is LASA’s market share of 35% going to help prevent the downside of the stock?
  • Are the IPs regarding catalysts really creating a barrier of entry? This seems to be the advantage touted by the management.
  • Can we trust the management’s word that it takes two quarters for pricing to be passed on? If so, when the oil price stabilized or fell down, will we see the profits go up to previous levels?
  • Management mentioned that the growth really is in grabbing the market share. Does this make it difficult for the company to grow?
  • I expect the turn around to be in another one year. But the stock could actually move only much later. My investment horizon is hence 3 years.

Disc: Invested with cost basis of @60. One of my most riskiest bet in my portfolio

(Shyam) #469

Not much news lately. But I guess the next two quarters will be like this, until the company walks the talk of transferring the cost to the end customer.

Also, the Secretary and Compliance officer now continues as VP-legal. Wondering if this a promotion and why they did not mention this in the previous disclosure on 16th. May be this removes one of the red flags in terms of governance.

Corporate announcement:

In continuation to our letter dated June 16, 2018 bearing Ref. No. LASA/SE/18-19/025 submitted by us with the Stock Exchanges, we would like to inform that Mr. Hitesh Dhruvkumar Wadhwani who has resigned from the Position of Company Secretary and Compliance Officer w.e.f June 16, 2018 will continue his services in the organisation as Vice President-Legal.

(phreak) #470

I just noticed that Lasa + Oscl is now about Rs.42. At the peak, it was worth about Rs.300 together! What a sham. If a story sounds too good to be true, it probably isn’t. I see that a lull has fallen on this thread. Instead of forgetting this turnout, I think it would make sense to go through all the developments in the last one year to understand and digest so that one doesn’t get caught in such scams in the future.

(Shyam) #471

I will list down some of the basis on what happened at my end. As I had mentioned in my previous post, this is one of the riskiest investment in my portfolio and I accept the risk.

The management dilemma
On an extrapolating logic based on OSCL, the management of LASA is likley to be bad. Now, the stock market was giving the benefit of doubt to the new spin off, which is supposed to be focusing on a part of business that has more potential. (this could still be the case, as nothing changed on that front yet)

A profitable spinoff??
The main difference is that, Lasa was showing signs of ability to generate decent profits, and it being vertically integrated, could have an advantage compared to others. This is when the stock price picked up and went to about Rs 200 by Jan 2018. Omkar, who took over LASA also looks like a qualified, honest promoter and seemed to be candid in his responses to questions. This is when I started tracking the stock. This is also the time when there was some fire incident and the management immediately communicated to the shareholders of the same, in spite of the risk that it could cast a negative sentiment on the stock.

Basis of valuation?
Now, in the last earnings call, LASA mentioned that the raw material prices skyrocketed and increased by upto 300%. Due to this, they would take about 2 quarters to pass this cost to the customers. This resulted in net loss for the last quarter, and very likely a loss for next quarter as well.

Their situation is understandable as they were in receiving end of oil price fluctuations. However, the stock crashed as the market is not ready to value the company with a lot of downside sentiments piling up.
This is roughly when I initiated my position as logically, there are only few possibilities on the future course:

  1. Management is not sincere and is trying to deceive shareholders: I did not see anything recently happening that would indicate to this.
    1.1 If this is the case, the stock would be as good as zero value
  2. Management is sincere about its findings
    2.1 The company takes a hit for another 1-2 quarters and then recovers back to profitability
    2.2 The company is not able to recover from the loss and folds up

What now?
The individual investors need to evaluate on what changed between Jan 2018 and now. Frankly, I think I am missing something, but until I am sure, I will do the best thing a long term investor would do. Continue my inaction :slight_smile:

(Cshar) #472

I had invested in Lass initially at much higher level however liquidtaed positions Omkar written off 54 cr as R&D expenses, some good was done to write down 54 cr debt, somehow they got Lass carved out from Omkar as clean company. Promotor interest looks honest with very low corporate governance. Omkar bought stocks at 80 rupees last month hence Omkar is increasing his holding as he is still below 40%. Area this company operate is niche & current Sales to Market cap is 5 which is very lucarative. It will rebound, initiated positions in June month, 4% of portfolio.

(paresh.sarjani1) #473

Interesting Shareholding Pattern

And pattern looks good without any shares to either Omkar Speciality or Pravin Herlekar…

Disclosure : Patiently invested without doubts on Mr Omkar

(DaNjY) #474

When Lasa management announced Right issue of 100 crores most of the intelligent investor exited from the stock at 200 level, Why newly listed company need so much cash. Instead of rewarding shareholders as they had promise and guided for in concall the management has gone ahead and raised more equity from the market via right issue.

If stock in life time high and management is not buying their own stock then why should retail investor buy his company this cause the red signal for most investor.

(paresh.sarjani1) #475

It has not raised any money through rights. Please Post where did you find this

(DaNjY) #476

This was the internal news. Management was looking to come write issue at 200 to 225 and looking for block deal. After that I excited and didn’t track this counter.

(paresh.sarjani1) #477

Yeah so if you didn’t track … Then don’t post incorrectly.
There is difference when you say “planning rights issue” and “raised money through rights”

I will give you update on rights. Management doesn’t want to raise capital in such bad market mood when LASA stock prices are low. Management thinks that lasa stock was at too low even at 67 RS…so imagine at half of this…how they would be feeling…

(vishwa7000) #478

Lasa story is not trusted by market and that is the reason when internal news came for right issue at @ 210, all the smart investors exited and stock is nearly down 85% since then. Guys , we must give some credence to Mr. Market price action and not to be unnecessarily overconfident. This kind of stock may bounce back a little only in bull market and not in current market scenario where lot of better opportunities are available for throwaway valuations, good quality management with impeccable integrity, good product, good business economics.
Disclosure: Exited around 90.

(rv007) #480

Some activity after a long time…