Where has she done that? Can you please guide me?
Yes. Price to Book is a common valuation metric. What she is saying is that PEL invested 48 odd crores worth of shares to buy this business.
But when returns of the business were filed it showed a net worth of only 10 crores. This business then incurred lossed of about 15 crores subsequently. Now Ajay does not buy businesses to lose such value so quickly, so this merits a question as to why it was done. Enquiries has elicited no answer.
As it looks from the news article, it is a share purchase agreement, not an issue of fresh shares.
I can buy say any listed/unlisted entityâs shares (without any fresh issue) like PEL at any amount I like. Say Rs 2500 per share. Does that mean Rs 2500 flow to the company? Does it mean it enhance the book value of the company? NO
In case of an acquisition, the difference in book value and value paid to acquire a business is known as goodwill and this goodwill appears on the books of investor and not the company itself. The books of the acquired company remain unchanged.
Regards
Varun
Disc: Invested
True. I made an error, thank you for pointing it out, I have corrected it, but the substance of the argument remains.
Shares were purchased by Piramal Estates Pvt Ltd (PEPL) from Piyush Goyal for apparently 48 crores. This, when it itself made losses of 119 crores!
So PEPL, a subsidiary of PEL, (Stocks - Bloomberg) will show this transaction in its books as an investment.
Thus 48 crores was paid by PEL in FY 15 to buy a firm whose PAT was only 34 lakhs in FY 14 (and seemingly in consultancy business, but with no consulting revenue in FY 14).
This company shows a net worth of 10.9 crores in March 15. So a price to book of atleast about 5 times was paid wrt March 15 net worth.
In FY17, this firm made a loss of 14.8 crores. Piramals stepped down soon after the sale from the board.
So in effect 48 crores of shareholders money was used to buy a firm at about 5 times book, but that made losses.
Who benefittedâŚThose who sold the shares to PEPL at what was an unjustified valuation
Who lostâŚshareholders of PEL.
Neither party overseeing the transaction clarifies.
Any good business or iconic organization usually avoids this kind of transaction. Mkt values these kind of cos as they know , the value of trust. Sometimes I wonder why HDFC or Gruh or Asian Paints or Marico, does not come under these kind of underhand dealings ???
Moreover ultimately it is my money that is being wrongly used. Has PEL given any explanation of the same to exchange after The Wire published the story?
There is no need to be emotional or biased as No govt or Party will compensate your loss. Remember in Satyam , it is ONLY Indian Investors lost their shirts. Everybody else including USA ones could recover some money
Mr. WB has a famous saying in this regard on reputation can be lostâŚ
Not just that. That former ET journalist seems to be unaware that any amount in parenthesis in a financial statement denotes a loss and not profit!
I am not seeing any discourses made by rohini singh from wire in PEL for 2014-15 in the NSE or BSE exchangesâŚso from where she got it was from PEL statements?
Two questions do arise. 1. What is the quality of the business decision and capital allocation on the part of Piramal? 2. What kind of ethical conduct is it for a minister of the Government !!
Shooting the messenger no good when Tasher Desh is collapsing in myriad ways. Never mind the political party. It is us, the citizens and the people of the country being once again taken for a ride!!
This is what she says now
I checked in Annual Report 2017. Piramal Estate is mentioned as related party of PEL and not subsidary of Piramal enterprises. Piramal Estate, Piramal Glass and Piramal Realty are separate entities of Piramal Group and not part of Piramal Enterprises.
PFA screenshots.
Piramal Subsidary List :
Related Parites List :-
In my opinion, we should always try to disprove the beliefs we hold instead of scouting for confirmatory evidence.
When our objective is to confirm weâll find enough evidence consistent with our beliefs.
But, by doing so weâd be dishonest to ourselves.
Pseudoscience confirms but science disconfirms.
In doing so, if we realise that our beliefs are false weâll be one step closer to the truth.
We should always be open to the idea that our beliefs may be false. Our beliefs should be contingent on the inflow of data.
And, how is the aforementioned content related to investing?
When we try to comprehend the ethical standards of a business promoter or any person for that matter, we should try to disprove the supposed integrity, ask questions and be sceptical. At the conclusion of our exercise if we fail to disprove the theory, it will be proven to be true- That is, the promoter is indeed honest.
Accept nothing at face value. Thereâs nothing wrong in asking questions.
The same applies to the article. We should try to disprove it before accepting the article.
But, disproving the article should be on the basis of reason. And not by casting aspersions on the author.
Thanks for the information. Only thing, going forward, will be more cautious on the behaviour of promoter. Again this action does not inspire confidence that tomorrow he will not do the same with PEL.
what should this will be having on the stock price? already PEL was hovering at 52 weeks low when it was at 2500 a while backâŚminimum we should expect clarification to exchanges on monday? or as it is not listed subsidiary they will not care to clarify?
Hi guys
The last few posts are nice in a way that those who hold positions are biased to defend and those who donât or have missed out seem to be against (havenât verified it so take it with a pinch of salt). I am sure all folks here are better financial analysts than the journalist. So if you find the âstoryâ a 100% honest piece of journalism or lacking an iota of truth itâs better to rationalize with facts and figures.
One of the books I am reading called Spy the Lie has a nice concept - Guilty unless proven innocent.
Rgds
Disclosure: PEL is one of my largest holdings.
My two cents:
I donât think it really makes a difference to either Mr. Goel or to Mr. AP. Both of them are involved in games with much higher stakes.
Note: Kindly forgive me if this is not correct thinking.
As it happened in the past, I expect OpIndia to find holes in the article written by wire in next few days. I am not judging whether the article is right or wrong but I only feel that lot of things could be misrepresented or presented in a way to create doubt in the mind of a reader. In the world of Fake news, we as an investor need to take any news article with a pinch of salt.
About AP, I believe that reputation or credibility built over 25+ years do not get âdamagedâ by one article written by a journalist on a forum known for its political leanings. On Monday, if this news creates short term price correction, I would be waiting to âpile onâ 
Disclosure - PEL forms substantial part of my portfolio
Maybe a novice question butâŚshould we just write to investor relations/compliance officer to ask for clarifications ? or will they think its just a fake news which doesnât need a response
Disc: Holding 1K shares and not afraid to add a hundred on monday if it goes down 
This news should clear doubts and calm nerves now
Frankly, itâs difficult for anyone to know if the aforesaid transaction was a genuine investment or a convoluted enrichment.
Itâd be imprudent to pass uncharitable remarks and level charges of misdoings on the basis of an article.
But, a major takeaway is that we shouldnât place anyone on a pedestal. No person is unblemished, stainless. Promoters of businesses, are just like you and me. Prone to err, prone to flaws.
Its detrimental to our interests to have very high expectations of them.
And, when it comes to evaluating moral standards of a businessperson, in my opinion its truly a waste of time. We can seldom objectively evaluate aspects like morality, ethics. Our assessment of the person is clouded by our biases.
Thereâs very little information available in public domain about businesspersons.
We try to conclude if the promoter is ethical or not based on a few interviews we watch.
How accurate will such an assessment be?
Very, very inaccurate.
People weâve been in contact for years canât be known well enough.
How do we expect to develop a healthy understanding of a person weâve never spoken with, let alone met.
Hence, letâs not place too much emphasis on moral standards of the people who run the businesses we invest in. Because, our interpretation is more often than not flawed, wrong.
