Appreciation of capital is good but protection of capital is equally important.
Young gullible investors who just learn about terms like p/e or other ratios will find lot of companies that seem to trade at cheap valuations and misunderstand them as value buys.
In my limited experience, Indian stock market is as much treasure hunt as surviving a minesweeper.
I am trying to make a list of fraud companies and the symptoms through which the fraud is identified. A new investor after one-two instances of fraud grows skepticism on the market and maintains the opinion through his life avoiding stock market which is not healthy. They stick to known forms of investment like bank fd, real estate land etc., This compilation is for them.
8K Miles
For beginners, this stock looks very attractive at a 1.73 PE.
You google for them and they look credible and time to time AWS keeps awarding them the ābest partnerā award
Red Flags
ā Company shows aggressive acquisition led growth
ā Forging a Auditor partnerās signature to transfer money to overseas
Manpasand Beverages
Very attractive YoY growth & capture of market share
A company that manages aadhar centers is valued at 50,000+ cr
Once disclosure norms became strict and the promoters are asked to notify the exchanges about the acquisition / disposal of shares from promoter group, a new strategy emerged. Wolf in the skin of sheep - 1) They float countless companies which hold the stock and are not listed as promoter group entities. 2) Company keep reporting stellar numbers QoQ & these wolf entites keep selling as price goes higher and higher. A bit similar to [monkey seller joke] 3) Once the game is over, they stop reporting the stellar profits. (clickhere.gr Jokes: Buying and selling monkeys)
Phenomenal revenue and profit growth rates and they keep posting addresses of newly added kendras too
Nice thread. Will be nice to know of the early warning signals of the fraud companies. Are there signs in their financial statements that can be inferred as an early warning signal?
Some cos that we can study
1.Lasa supergenerics/omkar
2.Shankara build con
3.Kwality
4.Adag group
5.Arrow green tech
Can make a separate list of value destroyers based on below red flags though here intention of promoter is not always fraud
-Business dynamics based value destruction (Eg jet airways)
-Over promising promoter in combination with overvaluation is also recipe for disaster (e.g. Kitex)
-Commodity products at peak of cycle treated as non cyclic by retail investor ( eg rain industries, Avanti feeds etc though in both examples promoters have been good in capital allocation, execution etc but sometimes thats argument itself act as a trap)
I was very lucky to exit Manpasand Beverages before it went downhill. Thanks to red flags I noticed while doing research. Here are some more red flags:
In Sep 2016 Manpasand had come out with a press release saying āManpasand Beverages āMango Sipā brand emerges as one of the fastest selling fruit drinks at SPARās retail outletsā. SPAR is a supermarket chain. I visited a SPAR Supermarket in Gurgaon in Feb 2017 and did not find a single Manpasand product on the shelves. The employees had never heard of their brands like Mango Sip. I posted about this experience on the Manapasand thread.
Motilal Oswal, the largest MF shareholder in Manpasand Beverages, came out with a very bullish buy rating on their portfolio company. They mentioned no downside risks. I posted about this on the Manapasand thread. I am not accusing Motilal Oswal of wrongdoing, but merely pointed out that they had not presented a balanced view. It seemed investors, including institutional ones, were behaving irrationally.
The AR showed that they were playing very low salaries to their employees. In some cases people were paid 1/3rd or 1/5th of the salaries that they would otherwise get.
Advertisements in Economic Times. For a brand whose customers mostly came from tier 2/3 cities, it made no sense to advertise about Manapasand in Economic Times.
Sun pharma had been doing domestic market business through promoter group company, since very long time. May be more than 20 years. Nothing seriously wrong in it, in my view.
Cipla had been doing their generics business through some agent since long time. Now they will do directly.
As far as price manipulation is concerned, it is an issue as it may attract some penalty. Which is a concern proportionate to the maximum applicable penalty.
