Because if you notice they have reduced debtor days .Earlier period in 2016-2017 it was 95 to 80 days while now its 39 to 32 days. Means recovery is improved a lot hence receivables have reduced. I hope, I am correct?
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Capital group sold big today in Polycab!
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This indicates inefficiency from the department. Ideally the communication should reach the company within few days, if they found proof of wrong doings. Also not naming the company creates ambiguity. Transparency is the key here and department should be clear in its press releases.
I may be wrong as I am not from Finance or CA background and do not understand the processes.
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Agree and if they have underreported revenues (to save tax), that imply that actual Profits for the company would have been higher vs reported and on PE basis, stock is even cheaper (~30X FY24 PE)âŚâŚ hope management has learnt a lesson in a very hard way and will put better financial/ethical controls and compliance in the organisation. This fall is definitely a great opportunity to accumulate (overreaction) and I hope this event is one-off.
On this whole topic itself, Management should clarify with IT department and should engage with investor community.
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Profits being higher is not the point. Under reporting revenue means the Sales & profits are off books and essentially not getting to the rightful shareholders & just going into pockets of the owners directly.
This is a character trait and not a one-off event. One off event is them being caught this time.
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CA. Gandharv Tongia, Executive Director and CFO, Polycab India Ltd was awarded CA Business Leader Award by ICAI
This happened 2 days ago
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Letâs think pragmatically and please go through my 2 min. read.
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There will be overhang on the stock price till a payment is made by the Company or the issue is resolved.
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What does IT Dept. tell us 1000 Cr. Sales + 400 cr. Cash payment +100 cr. Expenses so total problem currently Est. 1500 Cr. Max Tax impact 50% so Rs. 750 Cr.
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Can be paid with 2 qtr profit (Last yr. Profit Rs. 1600 Cr.). This is subject to Company not contesting and all the legal procedures. All this takes time.
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If promoters are not arrested and the amount is limited to Rs. 1500 Cr. Then above scenario plays and the company will not go bankrupt.
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Now the problem is simple â shareholders who are selling particularly FIIâs and DIIâs. How low can they make the price fall and who will buy when they sell. Surely price will settle at equilibrium.
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It is our job to find that equilibrium. Why? You are getting Indiaâs largest wire manufacturer intact(Factoryâs are not sealed) at a discounted price.
Thatâs my 2 min read of the situation.
Disc: Invested. Iâm not a SEBI RIA. Please consult an RIA before investing.
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Some light is thrown by Ajay Rotti, a well-known taxation lawyer on Twitter
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Good one Brijwanth. Am of the same opinion, we just need to wait for the right price discovery after selling is done. If polycab hadnât given this kind of returns in very short time, This wouldnât be the scenario. Probably market would have shrugged off this after a while. General psychology, if you have already made 4x kind of returns, 90% of the folks wouldnât think twice to cut down their holdings or even sell off completely on the bad news. I guess thatâs what happened so far. My take is once you see good results from the company in the near future, market will eventually forget this giving them a chance to correct governance isssues. Look at hero motorcorp, Manappuram, shree cement they gave very good returns after IT raids issue. Problem with Polycab was itâs hyper valuations. Overall, itâs a buying opportunity for me it it comes to 3600-3800 Zone.
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Hi @brijwanth, I agree with your thoughts. But as per me, the real issue is integrity of the Promoters now. If they are proven guilty of wrong doings, it raises the concern âwhat if they commit the same or some other tax evasionâ again. In such cases the amount should not matter because an INR 1 Crore evasion now could be an INR 1000 crore evasion or much more in some other year!
Disclosure: No position as of now. Tracking
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it is SOP for IT not to share information till a fresh return is filed, why is the company repeatedly stating they have not received any communication
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I have some random thoughts on this matter maybe it doesnât even make sense but here it goes:
- Iâm sure lot of corporate house do this sell things after making products from their listed cos resources or have a sister concerned co from which they source things at higher prices and other sort of manipulations. Iâm surprised that it came out so easily
- How come such a big co who mustâve been hustle their entire company life wasnât able to settle this issue? Iâm sure they mustâve encountered such things in the past and tackled it. This practise mustâve been going on for a while! Most cos usually clean up post listing (at least I hope to believe so)
- How come no such disclosure is out officially from the companies end?
Could it be an episode of dump and pump?
@Anubhav_Garg
Surely I agree that promoters must be ethical and companyâs reputation is tarnished. We as value investor should still be trying to find value.
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That was ED and they had confidently made bold statements in their website. To promoter Nandakumarâs credit, they were very transparent from day one saying its an old issue from one disgruntled individual, company arranged for investor call immediately and finally the HC closed the case.
I bought into the weakness in Manappuram and have been holding since then. Similarly I was looking into Polycab whether this is a good entry point, had it in the past but had sold off due to valuation concerns. First off, companyâs response does not give any confidence - they are acting like Government department saying we have not received any written communication. My worry is if the promoters has done hera-pheri, how can we be sure of their reported numbers.
Few questions i had:
- Why the fine amount (if any) should be paid by the company? Shouldnât the promoters be personally liable if they had personally benefited from the hiding of income.
- What are the chances of promoter getting arrested in future - under IT laws, under EDâs PMLA laws
- Any one knows if the promoters have any political affiliations
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Lots of very well known companys do the same . Otherwise NIkon and Canon DSLRs would not sell without documentation/ warranty in kolkata metro gully .
. Its a case of Promoter using the company resources to run his side business off the record. Not good by any means but not uncommon either .
IT department probably is sending the communication by runners so it might take time . Jokes apart, probably they are not sure about what all they can prove . Why else would the PIB notice have no company name ? This indicates they have not finished their invetsigation yet .
Regarding the questionsâŚ
- In my useless opinion , you are right. The charges and fine should be on the promoters head and not on the company .
- Same things were alleged about Munjal of Hero Motocorp last year âŚit was PMLA case . He is decidedly political and his party is not in power for a while . Was he arrested ?
Disc. Still invested and confused but sold half yesterday since that ensured that I have taken out my capital and same amount of profits . I intend to let the rest alone and probably add back some more if it indeed falls below 3300.
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This is the commentary from Abacus who sold full stake in Polycab today!!
For starters, Polycab (which was part of our Focused portfolio with an allocation of 5.5%) is currently in the spotlight for the wrong reasons. Just jotting down our thoughts on the current fiasco.
What actually happened?
Polycab had an IT raid on December 22nd. On January 9th, rumors circulated that there were around 1800 Cr of sales booked in personal records and another 200 Cr of tax evasion. The price started to react to this (down 9%) on that day. Post-markets, the company released a press release denying the claims.
Two days later, on the evening of January 10th around 8 PM, there was a press release from PIB (a media agency of the Government under the Ministry of Information & Broadcasting) indicating that the claims were true.
Why didnât we exit on December 22nd on the news of the IT raids?
IT raids are rare but not uncommon. They keep happening regularly for companies (Manappuram, Astral, Shree Cement, etc, to name a few in the recent past). A raid alone shouldnât be an issue. The findings & outcome of the raid are what matter. This press release at 8 PM yesterday has kind of clarified it, confirming the lapse in corporate governance.
Why didnât we exit on January 9th when the rumors started to pour in?
In the current state of social media, it is difficult to distinguish between a rumor and news, and more importantly, the authenticity of it. Polycab was one of our core holdings, which we have held for the past three years (entered in February 2021). Technically, it is not feasible to react to every rumor and move the position in & out of our portfolio. So, we waited for a day to see how things unfold. Our eyes were on the price action. In these kinds of uncertain news, price action gives an early indication of the magnitude of the event. The stock was down 9%, and the next day, it kind of stabilized. So, yes, we waited for some clarity to emerge before making any decision. After yesterdayâs press release, the news has become official.
Will there be another Polycab kind of event in our portfolio?
Honestly, I would be lying if I said that there will not be any more such events going forward. Because, fortunately, or unfortunately, we as outsiders have only a certain amount of information to deal with. And for the remaining unknowns, we have to rely on the companyâs history, management background, publicly available numbers, and, more importantly, a certain level of trust (both in our process & the management). We have to live with it, and thatâs where our risk management & position sizing comes into the picture. We usually donât allow any single position to go beyond 10% of the portfolio, no matter how confident we are about the company. Even in the case of Polycab, we trimmed our position from 9% to 6% in September 2023, not because we anticipated this fraud, but because we were not comfortable holding large positions in a single stock.
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Also, given the state of our bureaucracy and the system our promoters deal with for their day-to-day business operations, we have to accept it. Unfortunate to say this, but that is what it is. Everything is shades of grey, and it all depends on how you would like to react to it, and thatâs how businesses grow. To an extent, the market has also accepted it. In fact, there was an instance (almost a decade back, and I heard from a senior investor) where a consumer appliance company, the promoter, went too clean and was not ready to pay a bribe to commence his new factory operations. This delayed the production and impacted its sales. The market didnât like it.
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Coming back to Polycab, it was a false communication from the company and a corporate governance failure. Having said that, three months from now, the stock can bounce back to its previous highs and move on. But thatâs ok. That is the process we follow. For example, we exited Manappuram last year due to a similar kind of IT raid issue. We exited at 110/- levels, and the stock is now at 170/- levels. The same thing can happen with Polycab also, I donât know. In fact, 4 out of 5 of our such exits may bounce back, but our process will save us from that fifth one.
Closing thoughts: This is not the first, and it will not be the last. We learn from our mistakes, implement them in our investment thesis & take it from there.
This is the commentary from Abacus who sold full stake in Polycab today!!
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This is a commentary from Krishna Apalla of Capitalmind, not Abacus.
https://twitter.com/iKrishnaAppala/status/1745480110822818075
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Surely IT department would have standard process in place right. Why would they deviate for polycab specifically.
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This is July 29, 2019 news. Players of Cable Industry in Fake ITC Offences. Looks like evasion is on an industry level. But I am not sure if Polycab is guilty.
Disclosure: Not Invested.
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