Forensics and the art of triangulation

Thanks Raj that was very useful to know.

Raj i guess market is well aware about this thats why till 2 years back this share was priced so low. Till that point they are more like a trader of Japanese parent hardware (which is a very low margin business and carry risk of currency fluctuation etc) and indian company lacks power to dictate terms with powerful parent foreign entity. However hype around digital india and increasing proportion of IT service business (which is high margin) in overall revenue mix and expected high growth rate in near terms has caused stock price to rise so high in short time.

True. However, let’s have a look at the much hyped postal order which came along the hype around digital India.

The order was for 5 years for 1370 cr. revenue “which involves supply installing and maintenance services of hardware peripheral devices and operating system for the rural ICT. We will cater to about 129,000 post offices existing in the rural areas of the country.”

That’s roughly 1.06 lacs per post office. If we assume, each post office would require at least one system, one printer, some networking equipment (The networking part, seems like would have got handled by TCIL) and most importantly manpower to go, setup the infra, do some hand-holding to teach the staff on how to operate, report issues etc and also provide support for next 5 years… it’s anyone’s guess, how high margin this business could be ?

Many people linking the delay in result publication since last two quarters and attributing promoters motive for the same may appear to be untrue. Till last month previous indian top management which appears to be hand-in globe with previous auditors is not cooperating with new auditors. Parent company management seating in japan not able to figure out whom to believe as previous top management people was also long term employee of the company and must have good trust level with parent company management. It took so long for parent company to understand the issue and then they fill complain with police on may 12 and also now in position to publish result.

Ricoh Japan filling to Tokyo stock exchange:

Tokyo, May 19, 2016 — Our consolidated subsidiary, Ricoh India Limited (Headquarters: New Delhi, Bombay Stock Exchange – referred to as Ricoh India from here) acknowledged the delayed submission of financial results from the second quarter ended September 2015, at a Board of Directors meeting yesterday, and subsequently submitted them to the Bombay Stock Exchange on the same day.

Ricoh India appointed external experts to conduct an internal investigation into its failure to file financial results for the second quarter ended September 2015, in order to examine the concerns of employee misconduct. On April 20, 2016, Ricoh India notified the Bombay Stock Exchange of the progress of the ongoing investigation.

Ricoh India has given assurances that it intends to take the necessary measures regarding the financial results from the third quarter ended December 2015 in accordance with applicable laws and regulations, and to undertake any needed remediation to ensure this event will not happen again. Ricoh India is fully cooperating with the Bombay Stock Exchange.

Please note that there will not be any changes to the published consolidated results of fiscal year 2016, ended March 31, 2016, or the financial outlook of fiscal year 2017, ending March 31, 2017, for Ricoh Company, Ltd.

Ricoh India’s failure to timely file its quarterly reports for the periods ended September 2015 and December 2015 is unprecedented, not only in Ricoh India, but throughout the Ricoh Family Group and runs contrary to Ricoh’s culture. We will continue to work diligently with Ricoh India, as its major shareholder, to bring the facts to light and enact measures to try to ensure this type of incident will never happen again.

Furthermore, if there is any information that should be disclosed as the situation develops, it will be shared with Tokyo Stock Exchange promptly.

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Further on Ricoh:

An interesting interview with the veteran Mr Anil Singhvi on Ricoh. He in fact goes on to say that the rating agency that “upgraded” the rating should be banned. My own view is that the parent would have guaranteed the paper.

But we learn a lot by listening to him - Moneycontrol - Ricoh fraud


My thoughts on a few accounting issues wrt Ramco systems

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What about sintex which keeps on diluting equity every few years, Incremental capex, Related party txns, but also showing increasing ebitda and pays taxes also.
Market knows something about sintex that it prices it very low in the PE band of 6 to 10.


It seems that the correction in the price after this came to light was a an excellent time to buy the stock (in hindsight of course)

Made a presentation at an investor event earlier this month. Sharing it here - this is not any buy/sell reco or discussion of any specific stocks. its only a summary of my humble learnings over the years.

forensic-varadha.pdf (483.2 KB)


@varadharajanr Thanks for sharing and I have learnt from this. I should add though that for a moment I mistook Mungerilal’s wisdom to be Charlie Minger’s quotes.

Warm regards,

Excellent presentation Vardha. If you dont mind, can you kindly highlight what were the issues you discussed / presented in the slides titled “man ka dhan…”, “poke the karna”, “house of cards…” and “whahts going on here” . I think you may have covered in the individual threads, but if you dont mind, would appreciate if you could summarise here. Thanks.

thanks vinay

one mental model I use is is that whenever all 4 engines fire :slight_smile:

  • sales growth
  • asset turnover/wc improvement/cash conversion cycle
  • margin improvement
  • shrinking/stable balance sheet size - equity plus debt

happens, it means the company is like a jet ready for take off - it means there is strong demand, company is not chasing market share at the cost of margins and company is sweating its assets. that early indication was in “poke” in 2014.

In " man ka dhan", its the converse - slowing growth, falling margins , balloning debt and reducing WC meant that it was a slowing aircraft.

In " house of cards, in an education industry, wc is declining rapidly - going from neative to 40 odd days, FA turn over is falling, ROCE is plummeting at 11% and company is raising more and more money. Its a story where company is misallocating capital to lower and lower return avenues (or its numbers are not true).

Of course, this is hindsight - but the one mental model I am very sure of is what I listed above. If all four engines fire, the jet always takes off - valuations are of course, a diffferent game to be figured out.


Some of you may know that PwC, one of the big 4 audit firm is facing trial where the complainant is seeking a whopping $5.5 billion in damages for not noticing fraud during audit.

The charges are the biggest ever faced by any audit firm and provides some scope for learning.

The genesis of this trial is the collapse of Colonial Bancgroup, an Alabama, US based bank with $ 26 billion in assets, in the aftermath of the financial crises. Certain employees of the bank colluded to buy fake mortgage loans upto $ 1 billion from another firm TBW. TBW’s chairman was involved in the fraud and sentenced to 30 years (longest ever sentencing in the US). The fake loans blew the bank and the auditor failed to spot it.

Interestingly the fraud had its humble origins in “cheque kiting”; which essentially exploits the time between the credit of a cheque presented to a payee bank and the debit in the account of the payer in the payer bank, to show fake credits. I haven’t heard of too many cheque kiting cases in India but in cases where clearing takes a long time it could happen.

The following links for those interested to know more:

PwC on trial for not spotting $2.9bn fraud (behind a paywall)

SEC complaint on kiting


Simply amazing Amit Mantri. Kitex So well analysed and indeed very pertinent points raised.

Another curious thing I noticed in Kitex AR is that there in no mention of work-in-progress inventory either in the balance sheet or the income statement. Is there any alternate system of accounting, wherein these costs are accumulated in a different manner. All the inventory that is being worked on has to appear somewhere on the balance sheet. Surely they don’t bring all work to a stop at the end of every accounting period.


Very nice presentation. Both in content and form. Thanks for sharing.

So here is an interesting case study on this topic. I look at companies making all time highs during my lunch time. This is a good way to discover stocks. I keep a watchout for stocks that come repeatedly make all time high. IF they are good businesses at good value I follow them.

One stock that comes up regularly is Anar Industries. I guessed rightly this is probably related to Anar Patel (Guj CM, Anandiben Patel’s daughter) who has named in some not so above board dealings.

I looked into the latest AR reports and red flags started appearing

  1. company has been making losses all this while - while the stock has been a multibagger
  2. Some strange accounting changes - inventories shifting to work in progress
  3. business of the company is unclear - it is supposed to be trading in electronics good - but why are they doing it at loss
  4. the promoters (MD, etc.) are not taking any salaries. This one was very strange
  5. Large issue of equity shares to 3-4 entities which are again dubious sounding - in unrelated areas like retail and real estate. for some of them it is not even clear who owns them

So this was just on a very cursory glance and then I came up this moneylife article which raises similar sissues and raises point about stock manipulation

all in all an hour well spent :slight_smile:


I did not come upon this in their website about what they do. Does not make things clear at all

Anar Industries Limited is an integrated construction , infrastructure development and management company in India. The company aims to become a leader in execution of construction and infrastucture projects in various sectors such as water and waste water , transportation, irrigation, industrial construction & parks(including SEZs ), power transmission and distribution, and residential, commercial & retail property in and around the state of Gujarat.

The company was formerly known as Enrich Industries Limited and the company is listed on the Bombay Stock Exchange.

Ths company is also integrated with Hardware & Software profile around the state of Gujarat

Hi Varadha…can you please give some more triangulation points like cash…waiting for your next post on triangulation

A good article about Manpasand where the author has used similar Triangulation concepts