I had the opportunity to look at this company very closely when i was working in a bank in 2012. I noticed too many red flags during my due diligence and we declined a loan proposal at that time. Subsequently, our concerns came true!! Few learnings for me, from this are as below:
a) Try and connect with various stakeholders (banks, customers, suppliers etc) of a company to understand their operations in a better way. Here, i noticed CFO was way below their net profit. Then i dug deeper to understand their customers profile (as their receivables were spiralling up q-o-q). I realised, company had set up group companies in Singapore etc and have been raising invoices on these companies (and there was no cash realisation for days together). While q-o-q, company was showing higher profits, but i guess there was no actual cash realisation.
b) one of their existing banks was trying to terminate the relationship and move out. When, i enquired, i received a typical response that the company was not meeting their target returns for the bank and hence they wanted to move out. While, in such cases most of the well managed companies find a replacement bank easily, here company was struggling for some time to replace this bank.
c) MD& CEO meeting- post my meeting with them, i realised there is a lot more to read between the lines, as their responses were incoherent.
d) company borrowed short term funds and used them to purchase fixed assets. I think, auditor had even made a qualification to this effect.
Within a couple of months (from the time we declined the proposal), CFO of the company had resigned and thereafter stock fell like nine pins.
I joined VP forum this year. Today, i saw this thread and hence posting my reply now.
disc: not invested