CES limited - Any information?

Q&A: Questions & Answers
1

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

2

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)

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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.

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

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

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  • 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.

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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!

3 Likes
3

As per my view and study, The company is a closely held company under the disguise of a Public Ltd Listed Company…The Shareholders mostly would be part of the same group or known to each other. But follow this company sir, Since this is a goldmine.

I am waiting for any of the shareholder to public sell his share through exchange so that the float and iquidity increases…

If it happens, I would go all out to buy more shares because of the value propositions this company offers

Positives :

  1. Deeply Deeply Undervalued…If Bought at the current price and the liquidity increases this might be a multibagger (Maybe a 20-30x) P.S : Not at all exaggerating, Since the P/E stands at 0.08
  2. Decent Financial Parameters(ROCE,ROE, D/E, OPM%, NPM%, ROIC, PEG Ratio, P/E Ratio etc…), Eventhough there are companies with better financials in the same sector…nothing can be bought at this low price (Icing on the Cake)
  3. Book Value Stands at Rs.48 and the Market Price at a mere Rs.0.44…which is again another example of why its undervalued!!

P.S : Not an investment Advice (Just my Opinion)