Lloyd Electric & Engineering Ltd (LEEL)

Mr poriniju hv said in letter that he was under illusion that it would not be possible to siphon money

"Post demonetisation and implementation of the Goods and Services Tax (GST), corporate governance standards, law enforcement and business culture in India was improving and it was getting tougher to siphon off from public listed companies. Also subsequent to the Companies Act 2013, and various SEBI initiatives, the minority shareholder rights were getting stronger. Under these circumstances, the likelihood of LEEL promoters siphoning off the cash received from the sale of CD division was low."

He didnā€™t say ā€œnot possibleā€. He said he thought it would be ā€œtougherā€.

If the sale was complete in May 2017 and the cash wasnā€™t reflected on the books in Sep 2017, this should have been a serious red flag. Iā€™m surprised someone like Porinju would fall for ā€œmanagement discussionsā€, especially when there was a change of guard from father to son, given his experience dealing with ā€œchorā€ managements.

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https://www.moneycontrol.com/news/business/moneycontrol-research/leel-electricals-a-company-that-gave-its-investors-porinju-veliyath-lots-of-losses-and-learnings-3418201.html

Amazing how history repeats itself. I had invested in this company in 2007, when I was new to the stock market and some of the arguments made in 2017 were made in 2007 as well high growth, low PE, low AC penetration etc etc. I was pitching this idea in an interview and that guy said everything you say makes sense but we donā€™t look at companies whose management is based in Delhi at that time I wondered why would anyone say that. Then the 2008 crisis happened and the stock tanked but the business also started doing badly. They bought an obscure company in Eastern Europe and I thought why would they do that when there is a huge opportunity in India. Later I realized these guys are just siphoning money in the name of acquiring some company in Eastern Europe. I discovered they were a 'chor company back in 2008, however there was no outrage in the media probably because no high profile investors had investments in it. I am just wondering if I as a retail investor knew about them how come guys like Porinju and SPT who are in markets for decades didnā€™t know? I was a harsh critic of Porinju before and this episode only reiterates my view. When companies donā€™t pass the corporate governance filter no point in even looking at the numbers

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But the corporate governance filter is not black and white. Maybe from an outsiderā€™s POV it is, and that companies that have no publicised corporate governance lapses pass the corporate governance filter. However, anybody exposed to the operations of a business with a Rs.100Cr+ turnover knows that there is no such thing as good corporate governance. Given the opportunity and the willingness anybody would steal from their own company. Heck, even late stage VC firms that I am familiar with that have marquee investors siphon off moneyā€¦to the knowledge of everyone.

In my opinion, the best an investor can do is to ensure that the incentives between owner/managers and minority investors are the same. This way you can be reasonable sure that the business will do well. (Whether or not dividends make their way to minority investors is a different matter.)

I made the mistake of thinking that LEEL was the groupā€™s flagship company and that they would not jeopardise its future. I guess what I missed was that the promoters didnā€™t care, or had enough money, or had had enough to do with the company.

Given enough time all companies will go through corporate governance scares. This year it seems to be the #1 scapegoat for collapsing stock prices.

What transpired in LEEL might be scaring investors in Prabhat Dairy as well which feels like a similar case. Company has been valued almost twice its current EV by the buyer but I donā€™t think minority shareholders believe they will ever get to see the money from the sale. In these cases where such a large part of the company is sold, it might make sense for the listed company to be acquired through a OFS and the management changed by the acquirer instead of handing out cash to the promoter which might never reach the minority shareholder. I was bit surprised by the +20% open but looks like sanity prevailed and it ended -15% :slight_smile:

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Of course there is nothing that is 100% foolproof and absence of evidence is not evidence of absence. But having a filter is better than not having one. However the issue here is not about a company having an impeccable record before, passing all the filters and then going kaput one fine day. The issue is marquee investors recommending/investing in a company that has clearly failed to pass the filter based on their past actions thus taking their clients for a ride while they themselves are going on a European holiday from the fixed fees paid by the clients.

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From the article

  • Porinju remained invested due to the drop in liquidity and not because of the faith in the promoters
  • Management has been unmoved and defiant towards the minority shareholders
  • Porinju has taken legal recourse and complained to SEBI
  • Senior management has seen exits and auditors are feeling the heat tooā€¦

The above looks statement is really funny, i read last year or before year he said, he is ok investing in chor management companies (as India is growing) and their is huge opportunity there.

http://rakesh-jhunjhunwala.in/porinju-veliyath-stays-defiant-buys-more-of-chor-micro-cap-stock-in-quest-for-multibagger-gains-for-portfolio/

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does anybody have information if porinju is still holding LEEL electricals or have already sold off his entire holdingsā€¦

No disclosure is thereā€¦It is 23 nowā€¦horribleā€¦Now mkt cap is 93 Crores onlyā€¦

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Looks like group companies were always involved in some kind of frauds.

Easy for the promoters to take it private and keep all the dough to themselves. We know why HUL commands a P/E of 60. Because the other option is LEEL.

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Poor guy must really be hurting:

Read latest disclosure dtd 26th october 2019 of leel regd some gst related issue and action thereofā€¦

Any updates on SEBI probe. just wanted to know as to what happens after such frauds by the management

Even Purinju lost 75 cr in this fraud and could not recover, SEBI sleeping, Gid help us.

Nothing will happen. The legal system is very poor