Moment of Integrity [Behavior under stressful situations]
Clear and Consistent communication with shareholders [MD and CEO Letter/Talk - Talks about Important Issues, Easy to Listen to, You Learn from the Mgr. | Beware: Seeded with PR, Copy of MD&A, Jargons, Double speak]: Answers or Responds to the questions.
Independent Thinking ++ Avoids Me Too Attitude
Self-Promoting [Frequent Media Appearances, Promotes share price]
Accounting: Aggressive or Conservative
Even after spending time on all these, one could never be 24Carat sure.
I have been reading a few annual reports this month and I have a few questions regarding some observations which I have made in annual report of some companies:
What do you make of an annual report which has a lot of spelling and grammatical mistakes? Yes the annual report should focus on numbers and some typos/ grammatical errors would not change the meaning as such. But an annual report is a public document which may be accessed by a wide variety of readers, hence a basic grammar and spell check is elementary! I mean I would even spell check this post!!
How do you make sense of a company who is focusing a lot on the CSR and Employee well being part in the annual report. Almost 12-13% pages in the annual report are completely devoted to CSR and Employee well being sections. I may sound like a devil’s advocate here but this is something unusual for me (I have read annual reports of almost 60-70 companies in the last 3-4 years).
Some Independent directors of Mrs. Bector’s Foods are also the independent directors in Trident Ltd. And as far as I remember, the promoters of these companies are related to each other (Anoop Bector’s son being married to Rajinder Gupta’s daughter, I believe). This also came to light when IT department raided Bector’s’ director’s home in relation to search/ raid on Trident Group in Oct’23!
I think, it should be seen in context with the size of the company. A very small company whose reports are audited by even smaller auditors, who may or may not be auditing other companies, who are qualified to audit, but are not well versed in a foreign language like English, despite being educated and working in a profession, dealing with many documents every single day. I could be wrong here, or I am wrong here, but it happens more with the rest of India than with Southern states, relatively. Sometimes I find the scanned copies of documents difficult to read, as they are not scanned properly. On the same note, read a reply about a member who read an AR, which was colorful, glittering and it made him suspicious.
Again, the size of the company, and the kind of business the company does matter, along with the perspectives of management, their values, their journey, their work culture etc. They really want to take care of their own people and do their part for society, and perhaps want to gain some good name in doing so. For gaining more insights, one can read or watch interviews of management to look at such activities in conjunction.
Hence, there is also the qualitative part of a business, one that cannot be quantifiable.
Just some thoughts, make your interpretations and draw your own inferences, as these are part of investing process.
This, according to me, is likely the case, alot of smaller companies Ive noticed are showcasing CSR. since Sustainability and ESG becoming common jargons recently.
There are two main reasons behind detailing out on CSR and ESG
To project a positive outlook for attracting investment esp FII who are predominantly big insurance and pension funds that are very particular about ESG and sustainability. These days even prospective employees are particular about where they work and can help to attract talent
All the countries have committed to net zero goals and regulations are put in place to meet those. As part of this effort, SEBI has already mandated BRSR (Business Responsibility and Sustainability Reporting) for the top 1000 listed companies and may eventually extend to all in the coming years. Companies have to report agains 3 sections and 7 principles and most companies have already adopted to this format for their Annual Reports. (e.g. Axis Bank)
I think, there is also a catch here.ESG is about mitigating a risk ( there r many dimensions through which one can look at the ESG & sustainability).
Nowadays, i noticed, many comanies trying to build a sales pitch around ESG and Sustainability.but according to me , unless underlying business has growth potential ESG alone may not take them anywhere.
I look at the prevailing sustainability enthusiasm around BRSR in this way “if a company is reporting pollution data according to factory act regulation, they r doing it because they have to”
Sustainability initiative is a commitment from the current generation to leave the world in the current if not better shape for the future generations. This comes with huge upfront investment and ROI takes several years if not decade’s especially for a developing world like ours. If there’s no regulatory compliance put in place, companies will not adhere to and hence BRSR and other initiatives.
For an investor it is always the returns one will generally look at and if the companies sustainability record is good, it provides additional sense of satisfaction for the ones who are environmentally conscious
Why do so few companies declare dividends when they already have debt on their books and are on a CAPEX binge? Shouldn’t they prioritise debt reduction or CAPEX investment over dividend?
Warrants often are called insider trading to perfection. As promoters get a leeway to convert in 18months.
I remember Apl promoters issued warrants at 3k crore mcap. Rest is history. Same story with the likes of Rk forge and others at the cusp of an upcycle.
On the other hand, if the business isn’t doing well. Then warrants issuance won’t count or matter. At the end of the day, business performance counts.
Just over the years my observation has been, that warrants issued by cyclical companies is a big signal. As promoters lock in the price much earlier and the eventual business performance catches up. Leading to share price outperformance.
