CES limited - Any information?

Dear Valuepickers

I came across this company CES limited (company website - http://www.cesltd.com/ ) and its screener link is http://www.screener.in/company/512341/

Though I see links to Annual Reports from 2011 - 2014 couldn’t find if this script is traded in any of the exchanges.

Anyone has any clue?

Thanks
Pankaj

This company made me curious too.

I usually stay away from penny stock but a quick look at the Screener made it hard to understand why it’s a penny stock.

So for the first time, I went ahead, tried to analyze a company, and read its annual report. I am an engineer myself so there is a 99% chance everything below is incorrect. I hope somebody will correct us.

Good Things:

  • This company has 3000+ employees on LinkedIn.
  • It is CMMI Level 5 company which is a big thing for an IT company.
  • It is 36 years old company.
  • It has a share capital of 36 Cr and a reserve of 101 cr.
  • It has 4 subsidiaries which are all profitable
  • EV value is ₹ -98.8 Cr. (negative EV is a good thing I guess)

Concerns

So for red flags, I noticed:

  • Screener chart shows that it remained penny stock all the time (since 2007)!
  • Public holding is 25.16% out of which 10 people hold 24.02% from many years as it is. So effectively ~ 1% of shares might be in circulation retail. In that also there can a few people holding it further for many years. Very low liquidity. It may be the case there are not many retail shareholders.

  • A big chunk of liability doesn’t have details at any consolidated as well as a standalone level

  • 75% of other expense is “Outside Consultancy fees” which seems fishy

  • Promoters group has a complex web of subsidiaries and related parties. Most of these other companies do not have any information about them on the web. It seems the listed company here is not meant to create value for shareholders but to facilitate something else.

I am highly concerned about the last point. I run an IT company and we also have a 100% US-owned subsidiary. My other IT biz owners friends also have multiple companies but there have been two common themes:

  1. If a sub is created for geographical compliance/opportunities, it’s unlikely to have an independent website or business details on the Internet.
  2. If a sub or JV is created to enter a new vertical, then likely it will have its own brand/website/etc.

In the CES case, the subs are more like case 1. But then why so many subsidiaries in the same region?

The number of companies by the whole-time director at CES is a concerning Mohana Kancharla Rao - Director information and companies associated with | Zauba Corp

Overall

I think CES group as a whole is a legit business, doing good for their employees and clients. But the listed company CES Ltd doesn’t seem to be created to create any value for retail shareholders which appears to be the very small minority (1%). So I won’t expect dividends or long-term value creation.

Currently decided to stay away unless smarter people here suggest otherwise!

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