Glodyne Technoserve

The stock is down 83% since the highs inmay-12.Mcap of 335cr at cmp of 75; nearly 1600cr mcap wiped out in a matter of weeks! Annualised earnings using q1fy13 figures imply fy13 pe of less than one!! Price to sales of 0.2!

Seems like the pledged shares have been on sale, but for how long? Whats going on?

At the end of the day, if the company continues to do sales and profits as they have done in the past, shouldn’t the stock should recover, sharply?

Let’s consider some facts:

Few things have happened recently:

)- AGM was postponed from 24 Jul to be held some time in Aug/Sept (reason? Two directors had to attend the olympics)

)- The board recommended a dividend of 4.6/share recently, or about 6% yield at cmp. Previous 2 yr dividends were 4.2/share. This offers protection to an extent. But AGM needs to happen as well for the approval

Other facts:

)- Unusual increase of goodwill of about 442cr in fy11! Capex/capital wip gone up from 24cr in fy10 to 168cr in fy11, hurting free cash flow. Sundry debtors increased from 165cr in fy10 to 375cr in fy11 to 527cr in fy12. Not good. (but sales has also increased significantly; so maybe, not a big concern?)

)- The company has increased the debt to about 700cr as of fy12 (this could be more; who knows?). But, the company paid 20cr as finance costs in q1fy13 vs 25cr in q4fy12 (12cr in q1fy12). So maybe, some debt has been cleared off. But anyway, until fy10, debt was 100cr, which increased to 600cr in fy11!

)- average of operating cash flows for fy07-fy11 is about 35cr., or about 10% of current mcap. This is comforting. There is about 50cr cash (of course not net of debt), which is about 15% of market cap. Thats ok.

)- Net debt is about 650cr implying EV of about 1000cr. With fy12 ebitda of 500cr, EV/EBITDA comes out to be less than 2x! EV/Sales is about 0.4x!! Private market transaction would happen at atleast twice these multiples! Maybe 6x ebitda as well. This indicates a clear upside of 3x if other risks don’t materialise

If we consider the following returns scenarios:

1). 0x - 5%

2). 0.1x - 10%

3). 0.5x - 35%

4). 1x - 10%

5). 2x - 25%

6). More than 4x - 15%

As such, implied expected value is about 1.4x and deserves some attention. If the only reason this is going down is because some lenders are selling off to recover money, then there wont be an opportunity to catch the train on its way up, if at all it happens.

Haven’t bought yet, but might purchase in blocks of 25% of desired quantity with every 20% fall.

What do you think?

It racked up huge debt as it made a large acquisition ofa US co primarily via debt. Goodwil rise is also due to this. The debt has been there since 2010 when it acquired that co. Problem started when some of the entities were barred from F&O and to meet their obligatoins they had to sell their other holdings including Glodyne. That led to sharp fall and triggered margin call by lenders with whom shares were pledged by promoters.

As promoters had pledged 81%, they could not pledge more and lenders started selling their shares and are still selling. Promoters have been trying to convince them not to do so, as they wont be able to recover all dues, as they can sell only a few thousand shares every day.

This is unfortunate for promoters but clearly seems to be an opportunity for others to benefit from.

Hi RasKhem,

in forums this cos(its management) has bad reputation … any idea on its management integrity?

Hi Rohit,

Thanks for bringing Glodyne for discussion. I am newbie at valuepikcr and I trust you guys much more than other forums(I am a practicing physician so I hardly get any time toresearch). I am an investor in Glodyne for the past 3 years or so. I have made some profit from it. I started investing in it with therecommendationfrom reliance securities. Later trusted few boarders in moneycontrol forum. I thought the management is genuine professionals but first generationentrepreneurs with shallow pocket hence so much of debt. They are also very aggressive in theiracquisitions which obviously led to the present situation. In the forums I witnessed extreme passions about glodyne and its management. Both for and against. Those who are against expressed concerted personal vilification campaign against its management(obviously these guys know a thing or two about the company which they are not sharing). This led me to the belief that Glodyne must be worth digging deeper asit may be a multibagger if management learns its mistakes in managing fundsprudently and stick to their strengths. At the moment I am staying put. If you guys could throw some light intoglodyne it would be useful for small investors like me who have got stuck to this stock. I have a report on glodyne by Thomson Reuters which is more than the size permitted by the forum. I can share that if any body desires.


Why dont you post it google docs and share it as link,so it wont be against the rules here

Dear Prabeesh,

I am sharing the link of the google document as suggested

I had an initial look at the company. There doesn’t seems to be any issue with the company per se. They have a flatish EPS of rs 11+/-2 per quarter. The D/E ratio less than 1.

The issue is with reckless share pledging by promoter, and much more reckless lending by lender. Once the lender knows that the promoter can’t pay it back, they are trying to minimize their loss by selling in open market, thereby maximizing their loss. Strange finance, which is beyond my understanding.

It seems to be a pure value buy at current price of 67.70 and a ridiculous PE of 1.08, and dividend yield of 6%. The only issue is that with 8Lacs of share in sell order, and 40K average daily volume, the stock might hit lower circuit for another 2-3 week. So there might be better entry opportunity in future.

Donald/Hitesh/Other senior investor,

Do let us know your view on this company.

The company n the nos are fake . A good example of vast minefield Indian stock market comprises of n small investors should stay away from.

And how do you know that?

Had applied in its IPO n hv been tracking it ever since .

But is there same red flag which makes you claim that the numbers are fake?

Could you please elaborate as to why you think the numbers are fake (and upto what extent, if possible?)

if I remember correctly there was an IT raid in their premises last year and they had to pay some penalty. I don’t know whether that file is closed or not. I am sure the IT authorities went through their numbers more carefully at that time. If they had any suspicion they would have raised a red flag. It would be good if somebody could find out what was the officialoutcomeof that raid? Is it possible to fool everybody for so long?

To add to my above post; they have made fewacquisitions including a foreign company. Don’t you think the finance managers of all companies andthe managers of the lending financial firms would have gone through all the documents which are not in the public domain?

This is a second Deccan Chornoicle in the making.

Hi Rohit,

Would like to caution that it may be another case of cooked up things. Plz be careful…I agree with Jatin that there are lots of red flags.


PS: No onus on me if it turns around and becomes a multibagger or something. Just shared my observation.

Thanks Ayush. I haven’t come across any info yet that provides comfort, as such, haven’t made a committment.


The stock is on UC now.Commentator’s curse.

Hi Rohit,

Would like to caution that it may be another case of cooked up things. Plz be careful…I agree with Jatin that there are lots of red flags.


PS: No onus on me if it turns around and becomes a multibagger or something. Just shared my observation.

Thanks committment.


Dear Ayush,

Thanks for the warning. Could you please explain the red flags other than the debt/pledging?

Well this is a positive development…