There are lot of grey areas in this story.Corporate governance is main issue here.On July 8,2011 HDFC Sec published a report with Buycall.http://www.hdfcsec.com/Research/ResearchDetails.aspx?report_id=2978482.I sent a mail to them to recheck the story.Iam reproducing entiremail.
Hi,
Yesterday i read your report named** “camson-seeded growth”**.I have lot of Faith and respect for Hdfc and its research reports until your report.After your report all my faith gone.There are some grey areas in Camson story.They are visible for any investors who can read annual report.
There are some very interesting points in the Annual Report, raising several points on its corporate governance issue and also its business.
Auditoras has qualified its accounts on several counts raising some very serious issues as under. Incidentally, the present auditors was appointed in the last AGM only and this is theirs first year of audit.
-
Out of total expenditure of Rs 62.46 cr, supporting vouchers for Rs 25.06 cr. (40.12% of expenses) not available.
-
Sales of Rs 79.98 Cr as reported in the accounts are not tallying with the sales tax return filed with Sales tax authorities. The company is reconciling the same and there may be additional liabilities on account of its towards VAT.
-
Inventory records are not maintained. (Giving serious doubt about the production reported by the Company.)
-
Internal Control as regards purchase of fixed assets, purchase of inventory and sales of goods and services is very week and is not commensurate with the size of the Company.
-
Internal audit system is not commensurate with the size of the Company.
-
1. The company has sold Seeds for Rs 59.68 Cr and Biocides for Rs 20.29 Cr and others for Rs 27201 totaling to Rs 79.98 Cr. -
Some of very unnatural and abnormalexpenditure booked by the Co are as under :
-
Rebate and Discount: Rs 14.81Cr
-
Business Promotions: Rs11.26 Cr
-
Demonstration Trials : Rs 14.55 Cr
Business Promotion Expenses of Rs 11.26 cr is incurred as against last years expenses of Rs 3.73 lacs only. One can hardly believe such abnormal expenses on account of business promotions. The business promotion expense is over and above advertisement and publicity expenses for which co maintains separate head of account. One has to see this expense along with demonstration trial expenses.
Demonstration Trials expenses is for Rs 14.55 cr as against Rs 9.40 cr. No where company explains what is the nature of this expenses. In previous years these expenses were booked under Research & Development to show the company is spending very high amount on research.Total of Rs 57.91 lacs was spent. This is just .71% of sales
To produce11.93 lacs kg & 11.90 Lt of biocides, surprisingly the company has consumed only 60,130 kg of chemicals. There has not been any other consumption of any other material. How can you produce more than 12 lacs kg and 12 lacs ltrs of biocides just by consuming 60,000 kg of chemical… Here one has to take into account that the company has also produced 1.71 lacs kg of Seeds. Again these productions quantity does not include WIP, which has gone up from Rs 9.38 crores to 14.83 crores. This increase in WIP also involves significant quantity as well.
Previous years account has been significantly recast where almost every expense have been restated giving serious doubt about the company accounting policy and book keeping.
There have been significant differences under various head and also PBT and PAT in unaudited result published by the co for this year and audited result.
Management in page no-44 of AR-2010 mentioned that "B. NOTES TO ACCOUNTS:
- a. Confirmation of balances from the parties with whom the Company has had transactions are called for andreceived in certain cases and are reconciled. In respect of cases where confirmation of balances is not received,the Management does not expect any material variations.
b. Supporting documents relating to Rs 2,506 lakhs of expenses incurred during the year is misplaced / lost intransit. The management has reviewed these transactions and confirms the veracity of the same."
After observation of AR-2010 one can comprehend that
Since supporting documents for over 40% expenses are missed, they could be bogus. Bogus expenditure does not necessary means otherwise higher profit. sales have also been inflated.Sales being inflated can also be established by the fact that sales as reported in the annual report does not tally with sales tax return filed with the company".
So,Don’t ignore lot of investors has faith in your reports and blindly put amount into stocks recommended by you.I think it is irresponsibility from you by publishing this report with out going into annual report and auditor comments.Please take corrective measures .
I didn’t find any reply from them.But they again published a report with SELL call due to corporate governance issues.
http://www.hdfcsec.com/Research/ResearchDetails.aspx?report_id=2980341