Pincon Spirit Stock

Q&A: Questions & Answers Company Q&A
124

Hi Rajeev

I am invested in PS, and hence my views can (and will prolly) be biased. Although there are many positives in the growth part of the company, but I am really disturbed by the way PS is managing its Debt. I mean, upon carefully reading the PA e voting letter, I was not happy to see that, money raised via PA, will be used to offset ,“increase in borrowed funds”. Clear case of borrow from Peter to pay Paul. Meaning are they struggling to make their interest payments? Interest payments are made form Operating Cash flow, and inability to make those payments is the poor reflection of the firm’s ability to meet its cash flow needs. If you or any PS investor have another angle to see this situation, please share your views.

Deepali

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125

I got attracted towards Pincon due to the superior growth trajectory.Though, on further delving, it was clear that the company is fueling growth by raising more and more debt. Abysmal OCF! I am not sure how they are going to come out of this trap going forward. Growth is okay, but long term sustainable growth comes when balance sheets are kept healthy. In this case, as you clearly pointed, they are borrowing to pay back already borrowed amount.

I am here to see if they can improve their margins going forward (as they have said in the interviews) from current 6 odd percent towards 10-12%. It’s a tough task, but that would be a game changer for Pincon.

Disclaimer: Only tracking position.

126

Hi Mridul

“Abysmal OCF” is a spot on description. It tells the miserable story
behind the
struggle to make interest payments and a hurry to issues PAs.

Upon further digging, the dubious past and present shenanigans of
management is mind boggling. I have no solid proof to back it, so do not
know if I should share that information, but it just spills all over PS’
actions. Growth is impressive no doubt! In fact, *that’s *the trap, I feel.

Did you know that Roy is the Whole Time Director of Modi Udyog (BSE listed)
company? Both companies share the same Registered Address,

7, Red Cross Place,
’‘Wellesley House’,’,3rd Floor
Kolkata
West Bengal
700001

Its has a PE of 210! Outrageous, no? I bet, even Eicher cannot boast of
such “rich” valuations. And a quick glance to its P& L Statement will make
you scratch your head.(You can look for it at Money control)

PS, previously known an Sarang Viniyog, has been suspended for Insider
Trading more than once. You can check that here:-

http://www.watchoutinvestors.com/history.asp?def_code=C0081318

I am invested in PS, but I am planning to wrap it up, sooner than later, as
Philip Fisher says," What you have to learn is to fold early when the odds
are against you…"

I may be wrong, in all my observations above, but I am NOT willing to
stay invested till the end, only to find the ugly truth -that I was right.
And I am not wasting my time in any further research on this, but will
track it for sure, so as to learn how a dirty system also prevails.

Deepali

7 Likes
127

Hello Deepali

You are absolutely right that the company has very high level of debt. Most of this debt is short-term in nature and is being used to take care of the working capital requirement of the co - where it has high inventory and high receivables. If the inventory and receivables start coming down than OCF will turn positive and this will be a key thing to watch out.

On the long-term debt that is interest free from the promoter.

While I am quite concerned about the debt level, my current thinking is to watch closely what the management is doing and how the company is performing before taking any specific action.

Disc: I own shares of Pincon.

128

Hi Rajeev

Yes, Inventories should be important to watch out for. And keep a hawk eye on the “object” behind the upcoming FCCB. And further, is the management adhering to what it says it intends to do with the funds raised via FCCB…
But do dig, more about management, as I wrote to Mridul. Passion/workoholic is all blah, blah, if the integrity itself is in question.

129

This is a red flag…
FCCBs… have always been bad for shareholders as far as my personal experience and observation is concerned.

Please be aware of these… Price will rise… just to trap people…

130

Yup, promoter integrity is highly questionable here. I wasn’t aware of Modi Udyog (thanks for pointing that out). I had very small stake here (added around 60s), and i have exited this completely today. Growth is compelling, but should be backed with ‘balanced’ balance sheet! Raising more debt to pay interests is a big no-no.

131

Hi Paresh

FCCB, is just a debt instrument. FCCB, in itself is not bad. In fact, it’s
a smarter way to take cheap loans, especially if your credit rating is not
that good. It’s supposedly a win-win for both issuer and issuee. If the
stock price goes above the Conversion Price, the issuee converts bonds to
shares, and goes home with extra bucks, in turn the issuer’s debt get
reduced by that much.And ofcourse Equity gets diluted.

Problem occurs,when the Stock never reaches the Conversion Price, even till
maturity of the bond and the issuer has to repay the Principal with
Interest, to the bond holder, and if God forbid, the currency goes for a
toss, the issuer is hit by a double whammy (Currency difference plus
Principal with Interest repayment).

But in case of PS, in particular, given the notorious past and present of
Roy, there are many variables to his intentions of repayment.

Deepali

132

Deepali… i understand FCCB…
i am just telling…my experience with the firms opting for FCCB…

Rasoya Proteins… and many more examples

133

Yes. What you are saying is correct. I’m sure more than 80℅ of firms
issuing FCCB, have ended it horribly or pressed the reset button, meaning
again more loan to pay off old debts…

Sintex , I believe, is another such example( it keeps taking loan of all
sorts) …Even Castex, the list goes on…

That’s why, we as Investors dread that(I for one), especially if you know
the management is no way an honest one who has any intentions to ,forget
reduce, not even consolidate on debt…

Deepali

1 Like
134

On query no 2:
A few days ago I had a chance to visit a desi daru den (they have license to operate desi daru shop for also sell videshi ones) in Joydeb, Birbhum.

The desi daru they were selling was ‘JD’. That’s the only desi daru brand I could see around. The videshi ones were
a. Officer’s Choice
b. White Mischief
c. Some rum I forget

Maybe their distribution or visibility hasn’t gone up that north.

135

Rum…Ultra force rum, King’s coin rum, XXX rum?

Deepali

136

None of those were there.

137

Thanks Billu.

I thought they didn’t have much presence in North Bengal. However, Birbhum seems to be close to Asansol. So I would have expected them to have some presence in that vicinity.

Any other data point around presence and visibility will be greatly appreciated.

138

So recently a bulk deal happened in pincon spirits by one mr. Saumil Arvind Bhavnagiri where he bought at around 78.60 and sold at around 78.30 for about 2 lakh shares on the 25th. Googling his name I found four more such trades at a small loss with high quantity, thereby boosting the volume of those stocks. I also found a case of manipulating stock prices on the Adani exports scrip in which his name was mentioned.

Anybody can throw any light on this? What is their modus operandi.

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139

Nice catch Karthik! I too have noticed big trades done at nominal losses in many stocks, but never really understood the reason behind it. Hopefully, someone would enlighten us on this forum :slight_smile:

140

Hi Karthik

  1. How and where did you get the information of both buy and sell rates?
    Because, I read at Money control that Arvind Bhavanagri sold around 2 lacs
    shares.

  2. "Four more such trades ", that you found were in PS itself or some other
    company?

  3. “Modus operandi”… I’m not at all into the art of speculation, but
    being invested in PS, for a short time , did forcibly teach me certain
    things.

First, clients with big pockets, get an “inside info” that PS will touch
90 by results, when PS is around 66, the word spreads stronger and wider.
Second, the stock price picks pace with huge volumes and that too with
around 65℅ delivery percentage, then the word is out that “real” buying
happening as delivery percentage is also high.
Vulnerable Investors/traders, maybe like us, who had access to this
"info"(of PS touching 90),pre results or by results, that is, on 30/1/17,
try to put the puzzle pieces together,and start to believe in being able to
make quick bucks in a week’s time,and go all in to buy PS, but Gee, aren’t
they late, cuz, the volumes traded are, no doubt,high, but look at the
delivery percentage at both the Exchanges, around 40℅, meaning, fake
volumes created, thanks to guys like Arvind Bhavanagri, but vulnerable
traders don’t see that, as they are blinded by ₹90 target.

And before they realise their blunder it’s too late as dumping of stocks
has already begun.

So, gullible traders are stuck with loads of PS shares(as they are and will
be fed with fairy tale stories of growth, acquisitions and more growth via
FCCB money).And guys like Arvind Bhavanagri make all the money. And
vulnerable traders then become “Investors” in PS, as they can’t see the
truth , because that destroys their illusion of potential “multibagger”.

Disclosure: No longer invested in PS

Deepali

3 Likes
141
  1. I saw in moneycontrol too. I googled around and found
    https://www.indiratrade.com/equity/bulk-deals.aspx
    I entered 25th and got the buy/sell rates at 78.65(Buy) and 78.37 (Sell) respectively.
  2. No they were in different penny stocks. Just entered his name in Google and most of the results were bulk deals done by him in small cap stocks buying at a higher price and selling at a marginally lower price.
  3. Thank you very much for the detailed clarification. I understood it clearly now.
    Disclosure: exited fully yesterday.
142

Thanks Karthik for providing the clues and the link too.

Deepali

143

Guys, thanks for showing the other side of the coin. Earlier, fellow ValuePickers were claiming that their painstaking research and personal interaction with Mr. Roy proves that he is a good man who was falsely implicated in cases of financial misdemeanour/fraud. After cursory glance on the company, I decided to stay clear and could not invest enough time and energy to provide evidence to the contrary.

Pincon can go ahead and generate great returns for its minority investors, but showing the other side of Mr. Roy was important to make a balanced argument. I appreciate that you shared your findings with Valupickers.

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