Arshiya Internationl

[Vedant]

Thank You Vinay for the very useful info…

[vishmitt]

@prabhakarkudva

I studied this one a lot about eight-nine months back without actually investing in it. I shot off emails to many stalwart investors who all came back with their feedbacks, none of whom were convinced to buy but all were willing to watch this one.

No doubt it looked like that stock in a new sector that can transform your portfolio into something you can tell your grand kids about. The next pantaloon or the next Bharti airtel right?

Some of us can still tell our grand kids about this one but not exactly how we imagined it in our heads.

To be fair to the invetors it looked like a great business, except now with the benefit of hindsight. The ROE was actually very high with margins as high as 70% for the FTWZ business which is what everyone was betting on. The only problem was debt but then again there are so many debt heavy negative cash flow businesses that have done well.

Our dissection above tells us to ruthlessly discard all debt heavy businesses which I don’t think is the right way to look at investing,although it served us well in this instance. But that doesn’t make it a rule.

If they would have done a couple of qips no one might have even known about this and it would be business as usual today and this possibly would have been a multibagger. But I digress. Shit happened.

what I learnt from this episode uncertain businesses only when you see certainty ( and conversly buy certain businesses during uncertain times, which we all including buffett strive to do all the time).

very nicely put :

what I learnt from this episode is:Buy uncertain businesses only when you see certainty (and conversly buy certain businesses during uncertain times, which we all including buffett strive to do all the time).

is:Buy

[subashnayak_19_]

@hitesh2710

I think for me the learnings boil down to following:

avoid hot looking sectors and companies therein.

avoid debt laden companies

avoid companies with a lot of pledging. (small amt of pledging of around 5% or so should not matter too much) - another similar example that comes to mind is that of amar remedies. that also went down a lot from levels of 140-150 odd to 30-40 within no time.

Hitesh Bhai,

One practical question? Can we extend it to all similar stories, say like Granules, where the debt as well as pledging is reduing quarter by quarter, promoter increasing their share-holding quarter by quarter.

Can this be valid for companies like Wockhardt, who has risen from ash, and poised to become one of the largest pharma company in india?

[leon_lph]

@prabhakarkudva

I studied this one a lot about eight-nine months back without actually investing in it. I shot off emails to many stalwart investors who all came back with their feedbacks, none of whom were convinced to buy but all were willing to watch this one.

No doubt it looked like that stock in a new sector that can transform your portfolio into something you can tell your grand kids about. The next pantaloon or the next Bharti airtel right?

Some of us can still tell our grand kids about this one but not exactly how we imagined it in our heads.

To be fair to the invetors it looked like a great business, except now with the benefit of hindsight. The ROE was actually very high with margins as high as 70% for the FTWZ business which is what everyone was betting on. The only problem was debt but then again there are so many debt heavy negative cash flow businesses that have done well.

Our dissection above tells us to ruthlessly discard all debt heavy businesses which I don’t think is the right way to look at investing,although it served us well in this instance. But that doesn’t make it a rule.

If they would have done a couple of qips no one might have even known about this and it would be business as usual today and this possibly would have been a multibagger. But I digress. Shit happened.

what I learnt from this episode uncertain businesses only when you see certainty ( and conversly buy certain businesses during uncertain times, which we all including buffett strive to do all the time).

Hi Prabhakar,

I spent whole last month on this company, yes the business model and evrything seemed perfectly fine and i wanted to build a good psoition in it, …i second your thoughts that high leverage and high pledging are complete deal breakers but with this kind of leverage as someone has already put it in this thread , u need a firsthand knowledge of the business and the sector and this is what held me back… i could read in certain articles that there has been slowdown in container volumes at JNPT port (mumbai) when the port itself is going through an expansion drive , before i could pursue things further , the downfall of Arshiya had begun …

is:Buy

[madyam]

Not sure how this was considered a high RoE business; i heard about this Co 6-12 months back and read a few decent (and bullish) research reports which said RoE will inch upto high teens by FY 15 if everything pans out well.

But then i looked at BKT about 1-2 years ago (at 120-130 levels) and decided to pass on too. Am not comparing the two by any chance; BKT is an very well run company with a long track record in executing its business model and capex plans. But even there the huge debt liability if execution/demand falters scenario put me off. So one escape and one big miss

[ayushmit]

I think the key highlight andlearningfrom this one should be:

1). High debt. For me if debt: equity goes above 1.5 it becomes dangerous.

2). If a large co (whose stock is liquid) is going cheap during normal market - be careful. Remember usually market is right

3). If some large investors/FIIs are there for sometime and it is still statically cheap - be more careful

4). Do check www.screener.in . It did throw up some important negatives (Sorry, it may look like self-marketing but we have actually given lot of thoughts behind the negative points)

5). Don’t try to catch falling knives when markets are normal.

Disc: We had a small exposure here to study the stock (less than 0.50% of portfolio) and sold 60-70% of it at about 100-102 on reading the negative article. Still stuck with a very small qty.

So another lesson is not to ignore/deny the negative development. Infact a bit of technical analysis also helped here.

[Donald]

Ayush,

Thanks for bringing out a few more insights/caution items.

From my limited experience I would maintain that the problem in this case was more “behavourial” than “analytical”.It is not that the negatives were not known. Anybody who did even a little bit of numbers probing would see these…but many felt compelled to discount(?)…the much higher risks…and low returns…in pursuit of outsized returns.

Many I know justified flirting with the stock (saying yes the negatives exist, but) because of the “Hot” story. Think Hitesh hit the nail in the head when he warned about the behavioural pattern of chasing “Hot Sector” stocks. Well known names like Samir Arora advocating with statements like “This a very strong and completely new business, which India needed since long time” also adds fuel to the hype.

Would like to see further comments from Neeraj (who teaches Behavioural Finance) & others - if this would fall under a behavioural trap case?

[hitesh2710]

@ayushmit

If a large co (whose stock is liquid) is going cheap during normal market - be careful. Remember usually market is right If some large investors/FIIs are there for sometime and it is still statically cheap - be more careful

2).

3).

these are good insights to have. I now recall a lot of stocks where a lot of FIIs were stuck at high prices and companies went down the drain.

[Donald]

Those tempted to make out a case for big undervaluation NOW, accept that that is par - its normal human behavioural pattern playing out. Everyone is prey to these natural instincts:), goes for me as well.

But investing discipline would tell us to strictly stay away - till there is evidence of much of the underlying business characteristics turning for the better. There are enough nice/even juicy opportunities still around with great visibility for next 3-5 years. Why should we take the much higher risks??

Rational thinking coupled with rigorous investing discipline (the likes of Abhishek) can effectively negate the pulls of natural behavioural traps.

-Donald

[anil1820]

@Radioactive_Po_

The first thing which comes to our mind in such cases are the returns earned in a Satyam or a Wockhardt. When something falls a lot, it automatically starts looking attractive since we are previously anchored and accustomed to seeing a much higher price.

excellent insight , thanks

[mallikarjun]

Technically Arshiya was indicating bearish pattern from almost 2 years. It never indicated strong uptrend.

On 10/12/10 it closed below its 350 ema. Closed @ 219rs.

It never crossed it previous high of 292 rs which it did on 3/12/10.

Again on 7/3/11 it closed @ 177 rs.( Way below its previous bottom ). Later on it was free fall.

Markets did indicate.

Thanks to Bala Sir & Hemant Sir, have started to look for technical indicators as well.

Was about to invest in Tulip and Arshiya. Debt/equity kept me away.

Was amazed by Tulip’s data center and had read an interview in Times about its founder, some time back.

[niranjan13]

Hi Hemant,

Arshiya has submitted auditcommittee’sfindings and results to NSE/BSE. Would like to hear your views on it.

http://www.moneycontrol.com/company-notices/arshiyaintl/notices/AI60

Regards,

Niranjan

[hemant]

hi niranjan,

things don’t look too good at the moment with the main growth driver ftwz also seeing QoQ drop in revenues. i think the stock will await the CDR approvals or more clarity on the debt servicing before it can enter into a longer term uptrend. from this price, if one has been holding from higher levels of 100+, there is very little to lose and hence no point in selling. although, the hard assets are intact and once this debt situation gets better, we could expect it to recover some lost ground. caveat here would be that in case all the financials were cooked up, then we could be staring at outright bankruptcy as well leading to permanent loss of capital.