Thank you @h_nazkani for digging through.
This is a long post and a little involved, mainly addressing @h_nazkani’s post so please bear. I specifically address the acquisitions and show the disclosure discrepancy and what it implies about valuation of 8K Miles US (which is 8K Miles Software Services Inc.).
Acquisitions in FY 14
The Press Release does not disclose the terms of the FuGen transaction, unlike the terms disclosed later, say Cornerstone acquisition made in May 2017. We can at best infer that 8KMiles US stake reduced in 2014 by ~ 40% in the year FuGen was acquired. Nothing more.
Disclosure discrepancy
In AR 2014, if the share capital of 8K Miles India remained at Rs 45,200 (1,000 shares) and it diluted by about 40%, then one can infer that about 674 shares were issued to others who constituted ~ 40%, making the total share capital at $ 1,674 and total shares at 1,674.
However in AR 2014 there is no disclosure of holdings in subsidiaries as required by Section 212 of the old Companies Act or AOC 1 under the new one. Thus the terms remain opaque. We do not know the terms of the transaction that led to a 40% dilution of 8K Miles US to assess value, but read further to get a sense of this was.
Acquisitions in FY 15
Of the two acquisitions completed in FY 15, Mindprint (disclosed on 09 March 2015) 8K_Miles_Software_Services_Ltd_090315.pdf (247.6 KB) was for $ 100,000 in cash and $ 250,000 in US subsidiary stock. SERJ was acquired in Nov 2014 and the terms were not disclosed. Upon a query by the exchange 8K Miles said the acquisition was in cash for Rs 15.80 crores. No stock was issued.
Disclosure discrepancy
The AR 2015 however shows a transaction that does not make sense. Under the terms of the transaction as attached above, stocks of 8K Miles US were given to Mindprint. If 8K Miles has to give its own stock as consideration for purchase, it can be done either from existing pool of shares or by fresh issue of shares – no third possibility. If it is existing pool, then 8K Miles US would have had to buy it from someone* and issue the same to Mindprint. If it is fresh issue of shares then the holding of 8KMiles India should have come down from 59.72% previously. But you can see in AR 2015 (page 44) that percentage holding stays the same at 59.72%, and (page 82) share capital also stays the same.
This can only mean 8K Miles US first bought its own shares from parties holding the 40.28% and subsequently transferred it to Mindprint. But 8K Miles US also says no related parties were involved.
This issue cannot be resolved unless the 8K Miles US Annual Report for FY 15 is shared. However, quite dubiously, in AR 2015, there is AOC-1 disclosure but it shows only Mentor Minds India entity, none of the rest unlike say in AR 2017. So we cannot know any further.
*this assumes there is no Treasury stock held by 8K Miles US.
Acquisitions in FY 16
In FY 2016, 8KMiles US acquired Cintel Systems Inc (expected closure in May 2015, for $ 1 million in cash and $ 1.5 million in stock) and Nexage Technology USA (closed in Nov 2015 for $ 1.5 million in cash and $ 1.5 million in stock). So for these two acquisitions 8KMiles US spent $ 2.5 million in cash.
You say the cash-components were funded by promoter infusing capital (page 120 of AR 2016). In other words the capital was issued was raised by 8KMiles India, which subsequently infused capital into 8K Miles US, which subsequently made the cash payouts, right? Because the acquiring entity was 8K Miles US and not 8K Miles India.
A serious discrepancy and what it (mis)leads to?
The AOC 1 on page 59 of AR 2016, with some analysis, reveal serious gaps between the valuation of 8K Miles US we are led to believe and the valuation t which the transaction was done.
During the year FY 2016, 8KMiles India also increased its stake in 8KMiles US from 59.72% year before to 62.66% and the money infused was ~ Rs 24.5 crores (page 97 of AR 2016). In the same time period, it also issued $ 3 million in stock to the above acquired entities. Let us try and find out the approximate pre-money valuation at which 8K Miles India infused capital in 8K Miles US.
Recall shareholding of 8K Miles India increased during the year from 59.72% to 62.66%. Recall the total capital of 8K Miles US at the beginning of FY 2016 as seen earlier is $ 1,674. Recall this is arrived at by taking $ 1000 to represent 1000 shares amounting to 59.72%, as stated in previous annual reports. In Rs terms @ Rs 65 it is about Rs. 108,840. At the end of FY 16, the total capital of 8K Miles US was increased to Rs 1,898,723 and this corresponds to $ 28,725 at closing exchange rates. This corresponds to a total number of issued shares at 28,725 at $ 1 per share, assumed same as before.
In other words the total outstanding shares of 8K Miles US at the end of FY 16 was 28,725. Of this 8K Miles India holding at 62.66% translates to 18,000 shares. Recall it was 1,000 shares at the beginning of the year. Which means for an additional 17,000 shares 8K Miles India paid up Rs 24.5 crores during the year. In other words, post money valuation of 8K Miles US was about Rs 41.4 crores (= Rs 24.5*28,725/17000 cr). Which means pre-money valuation was 16.9 crores (= post money valuation minus capital infused). At the average rate of 64.13 to the dollar, this translates to a valuation of about $ 2.64 million.
In other words, 8K Miles India valued 8K Miles US at just $ 2.6 million! This after (a) after some multi- million dollar deals, (b) after FY 16 opening book value of about 8K Miles US $ 24 million (AOC-1).
Would any of the remaining 40% shareholders of 8K Miles US allow a $ 24 million business be valued at $ 2.6 million for 8K Miles India? If they indeed allowed an infusion at $ 2.6 million, what does it say about what they really think 8K Miles US is worth?
Not surprisingly, the $ 2.6 million corresponds to more or less the cash payouts for their two acquisitions in FY 16.
You may do a similar math for FY 17 as well and see.
If this is really long and many are put to sleep, another idea is to just check the validity or existence of some of their trademarks (claimed in the past as present) with the US Trademark and Patent Office database.
@rahuljain9 Please check the only conference call in Researchbytes (Q3 FY 18) and I think it is at ~ 50 min. I have no clue about the industry and if the CEO says Cloud Era is a competitor I cannot be any wiser and say no. There are also some interesting queries posed by analysts.
Having made myself really unpopular with the group after this post , I suggest @h_nazkani we take it offline!