Took me a while to find out what exactly is their business! I’ll make a small case for the SHORT opportunity, otherwise (in my opinion) it most certainly is a possible fraud. (It would be an insult to use the word “Corporate Mismanagement”)
It took me a while to pull up their annual report than it usually does (trying to hide something)
Annual report is too flashy (looks like a marketing brochure) with details of the industry rather than the numbers of the actual business. MD&A discloses no information about the business.
The fire incident that burnt all the records (Physical + Digital). Must have been one hell of a fire!!!
Not even once in their report have they mentioned the quantity of rice they have sold! They have mentioned the domestic & export breakdown in the footnotes. Isn’t that something that you mention in the beginning?
Product is not available on Flipkart or Amazon. Neither are the reviews and I am yet to see an actual picture of the bag of rice from a consumer! All I was able to find was virtual Photoshoped photos on the web.
DAAWAT has about 2800Cr in Rev. and 78Cr in employee cost (2.78%), KRBL has about 4253Cr in Rev and 101Cr in employee cost (2.37%) and MISHTANN has 490Cr in Rev and 0.396Cr in employee cost (0.08%). This is a 2021 AR comparison for all 3 businesses. If this is true, the people in Mgt. are superhumans.
And to put the final nail to the coffin, the business has not generated cumulative positive cash flow over its life so far. (Numbers are from their annual reports’ cashflow statement). Had I done it my way, I think the outflow would be more negative.
FYI, The statement of cashflows AND profit & loss did not exist in 2014. They had a cash balance of 74M and non-current assets of 32M. Its a very smart accounting gimmick they have played I think.
Lets say you have full control over the business - you sell everything and you pay everyone.
Total assets 1600M approx - Total Liabilities 590M approx = 1010M (Equity)/500M (shares) → Realizable value per share is 2.02 INR (This is me being very generous and assuming that these assets actually do exist)
If I calculate the liquidation value the Buffet way (which is what I usually do), realizable value is hardly 1.38 INR. This is including an loan asset of 143M (which I believe will not be recoverable because its given as other advances, only God knows for what), otherwise the value drops to 1.10 INR.
Also, there was a mention of this business on:
Will I SHORT it? - I am very intrigued and maybe I might. (I still need to do a lot of accounts reconciliation from 2014 to) I do not have a long/short position at the moment. Moreover, this reminds me of a wise man who once said “Markets can remain irrational for more than I can remain solvent!”
@never_overpay yes sir you are right about the possible fraud in this case. AR is showing a rosy picture but reality is different. On page 12 of AR, they are talking about active social media engagement on various platform, however when I did cross checking, I couldn’t find them actively engage in any of those platforms. AR says that all those 10 employees are working from home and they don’t have any operational office post fire incident which is strange!
If you look at the corporate actions of last 5-7 years, it is full of split, reverse split, bonus etc without any proper justification. Promotors are buying/selling shares very frequently.
On a different note, this is a callout to anyone interested in exploring this “Case Study” as a forensic accounting opportunity.
I did go through their financial statements from 2014 (when they were a cement company) till now. Given the nature of accounting (that assets should match liabilities) accompanied by simple additions and subtractions, it is impossible to prove/hint that there is something fishy outright. Needless to say, I merely have a working knowledge of accounting only.
I have a working theory, but its just that - a hypothesis. I do not intend to convince myself or others on any outcome, the case has just struck my curiosity. There is a part of me that says, I should not invest any of my time on this, but I want to learn more and want my convictions questioned. As Charlie would say (something along the lines) that if you haven’t changed a belief/idea of yours in a year, its probably a wasted year. I am looking forward to either working with someone on the forensic part or call it an educational group study/discussion. For EDUCATINAL PURPOSES ONLY!!! Please PM me if you are interested. Many thanks.
I am still of the same opinion. Better to have a mistake of omission than a mistake of commission.
The red flags for me are: (in addition to my original post).
a) For a company with a MCap of 13000M, they fail to meet regulatory requirements for timely disclosure of information.
b) The MD was arrested and the business failed to disclose the information in a timely manner until the matter was taken into hands by SEBI. No matter the pretext/reason, an arrest in India usually happens when its something serious. Personally speaking, I wouldn’t handover my money to a crook.
c) Again for a company this big, I find it very spooky that they do not have a half yearly conference call. Also didn’t find the video of the AGM or its transcript. Officially they finished the AGM in about 30 minutes.
d) An MoU is just that - A memorandum of understanding.
It wouldn’t matter if the promoters put in their own money or not if this is an elaborate accounting scam. High rice prices only indicate a peak in this commodity business. The business is not generating cash. Period.
I am open to your views if you show me the numbers as well. Look under the hood (look at the numbers in the annual report rather than on screener/trendlyne). A story for the business can only go so far.
I have exited the stock after going through this. Was really excited about 1000KLD plant coming up next year. Maybe the plant will come, maybe stock price will shoot but ultimately looks like shady management.