Lok Housing made the following disclosure [link] during the just concluded quarter:
"The global economy in general and the real estate industry in particular is passing through recessionary scenario, which has resulted in to financial melt down of un-precedential scale. From time to time the Company had entered several agreements for sale of plots, properties, development rights and constructed units held by it as stock in trade. In accordance with the consistently followed accounting policy of the Company, sales revenue and profit thereon were recognised at the time of entering in to such agreements to sell. Due to the financial melt down and Severe economic recession, some of the parties with whom the Company had entered in to agreement to sell have failed to meet their commitments and considering the overall interest of the Company, the agreement for sale entered in to in the past financial years and in respect of which revenues already recognized have been mutually terminated / cancelled. The Company has been legally advised that though the agreements for cancellation of sales have been entered in to during this quarter (being October to December 2008), but since cancellation of sales pertains to sales recognised earlier, the financial statements of the period during which sales and profits were recognised needs re-construction / amendment, on the doctrine of "Relation back". The Company shall amend the financial statements of earlier years and get the same approved in the next general body meeting. Accordingly no effect in respect of cancellation of sale agreements has been given in the financial statements of this quarter. During the quarter under review the Company has entered in to 53 agreements for cancellation of sales made in the earlier financial years, the sale value of which is Rs 282.14 crores and the resulting loss / reversal of profit recognized earlier being Rs 225.01 crores" (This is all of what Lok Housing earned in the last three years!)
Are financial shenanigans at play here??...and the worst part is accounting policies in India seem to allow it happily. It's about time, accounting of sales for real estate companies is changed. You simply cannot allow companies to book sales in their income statements purely on the basis of a purchase/sale agreement with the real cash coming in after a few months/years and in case of companies like Lok Housing, NEVER!
Update: I have a detailed article on this on Dr.Ajay Shah's blog [link]
Showing posts with label Stocks to Avoid. Show all posts
Showing posts with label Stocks to Avoid. Show all posts
Sunday, March 01, 2009
Saturday, January 10, 2009
Stock markets behave like a voting machine...
...in the short term, while in the long term they act like a weighing machine", said Benjamin Graham in his bible on investing, Security Analysis, the sixth edition of which has just been released, a highly recommended book.
We've had two nearly full trading sessions since the news about the fraud at Satyam Computers was made public. During this period, the voting machine has been working overtime (literally, given that volumes on the stock exchanges have shot up significantly, up from an average of around 6-700 million shares on the NSE to over a billion shares per session).
So, what are the votes (in case of the Nifty 50 companies) indicating?
Top Losers (since the Satyam announcement):
1). Reliance Communications -25.0%
2). DLF -22.2%
3). Suzlon -22.1%
4). Unitech -21.8%
5). Reliance Infrastructure -20.2%
Top gainers:
1). Hindustan Unilever +6.8%
2). Sun Pharma +5.7%
3). TCS +5.5%
4). Maruti +4.0%
5). Wipro +3.3%
Intuitively (again in the short term, i.e.), the companies voted out (the top losers category), seem appropriately placed...isn't it !?!
We've had two nearly full trading sessions since the news about the fraud at Satyam Computers was made public. During this period, the voting machine has been working overtime (literally, given that volumes on the stock exchanges have shot up significantly, up from an average of around 6-700 million shares on the NSE to over a billion shares per session).
So, what are the votes (in case of the Nifty 50 companies) indicating?
Top Losers (since the Satyam announcement):
1). Reliance Communications -25.0%
2). DLF -22.2%
3). Suzlon -22.1%
4). Unitech -21.8%
5). Reliance Infrastructure -20.2%
Top gainers:
1). Hindustan Unilever +6.8%
2). Sun Pharma +5.7%
3). TCS +5.5%
4). Maruti +4.0%
5). Wipro +3.3%
Intuitively (again in the short term, i.e.), the companies voted out (the top losers category), seem appropriately placed...isn't it !?!
Wednesday, January 07, 2009
Thank you, Mr.Raju...
...for taking away the last piece (the Cash Flow Statement) of the Annual Report, which many of us analysts used to once trust as a reliable source of financial information.
And also for writing this letter. I truly believe you've opened a Pandora's box so far as corporate governance is concerned. Some of the things I hope to learn over the next few days is:
1). How can a Company have "zero" cash on books and yet be able to show cash & bank balance of over Rs.5000 crore? (banks provides fake FD certificates? or the Company forges bank statements/certificates?
2). In the last 3-4 years, the Company claims to have paid Corporate tax of close to Rs.800 crores. On what; profits, which profits?
3). Cash = zero, debtors = overstated by 2000 crore, balance sheet size = 8000 crore, actual b/s size = ???
4). What statements (followed by actions) will come from PWC (the auditor-in-Chief @ Satyam), SEBI, Department of Company Affairs and GoI? (Will Satyam be auctioned-off under the aegis of GoI to various IT companies in India?).
Prof. Verma is right on (link1 & link2). GoI must take this up, and quickly.
And also for writing this letter. I truly believe you've opened a Pandora's box so far as corporate governance is concerned. Some of the things I hope to learn over the next few days is:
1). How can a Company have "zero" cash on books and yet be able to show cash & bank balance of over Rs.5000 crore? (banks provides fake FD certificates? or the Company forges bank statements/certificates?
2). In the last 3-4 years, the Company claims to have paid Corporate tax of close to Rs.800 crores. On what; profits, which profits?
3). Cash = zero, debtors = overstated by 2000 crore, balance sheet size = 8000 crore, actual b/s size = ???
4). What statements (followed by actions) will come from PWC (the auditor-in-Chief @ Satyam), SEBI, Department of Company Affairs and GoI? (Will Satyam be auctioned-off under the aegis of GoI to various IT companies in India?).
Prof. Verma is right on (link1 & link2). GoI must take this up, and quickly.
Thursday, March 13, 2008
Power Grid Corporation - Overvalued !!
Just finished reading an updated research report by a broking firm, which recently got listed on the bourses and the one which is sponsoring the shorter version of Cricket, on Power Grid Corporation. The firm has an "Accumulate" rating on the stock.
However, what strikes me is the price at which the rating has been put out - Rs.110 (on 7-Feb-08). This is the same price at which the firm had put a 'Reduce' rating on the stock, exactly seven days before, i.e. as on 31-Jan-08. Strange are the ways in which Stocks are being rated on Dalal Street.
As for my view, I think the stock is quite overvalued at current levels. Despite having an envious business model and a near monopolistic position in the power transmission business, I think the price just isn't right. At the current price (Rs.104 per share), the Power Grid Corpn stock is quoting at a P/E of around 28 times.
That for a stock which is unlikely to be able to expand its earnings (at the net level) by more than 20-25% over the next few years, that too providing its telecom towers biz does well. Further, and more importantly, Power Grid Corpn earns a fixed return on equity (as stipulated by the Government) of 14%, with v.limited upside, if any.
I would be comfortable buying it at around Rs.70-75, given its growth prospects and the near monopolistic status. At the current price, there's significant room for disappointment on the downside.
However, what strikes me is the price at which the rating has been put out - Rs.110 (on 7-Feb-08). This is the same price at which the firm had put a 'Reduce' rating on the stock, exactly seven days before, i.e. as on 31-Jan-08. Strange are the ways in which Stocks are being rated on Dalal Street.
As for my view, I think the stock is quite overvalued at current levels. Despite having an envious business model and a near monopolistic position in the power transmission business, I think the price just isn't right. At the current price (Rs.104 per share), the Power Grid Corpn stock is quoting at a P/E of around 28 times.
That for a stock which is unlikely to be able to expand its earnings (at the net level) by more than 20-25% over the next few years, that too providing its telecom towers biz does well. Further, and more importantly, Power Grid Corpn earns a fixed return on equity (as stipulated by the Government) of 14%, with v.limited upside, if any.
I would be comfortable buying it at around Rs.70-75, given its growth prospects and the near monopolistic status. At the current price, there's significant room for disappointment on the downside.
Tuesday, June 19, 2007
ICICI Bank FPO: To invest or not?
Investors are advised not to invest in the ICICI Bank FPO given that the current public issue is likely to result in close to 20% equity dilution. What this means that for the stock to sustain the already higher valuations, its price needs to drop by around 20%, i.e. to around Rs.750-800. Besides, there other financially & operationally superior banks available at comparable (HDFC Bank) or cheaper (UTI Bank) valuations.
You can see the comparative valuations table here and a detailed review note here. (both by Mr.Ashok Kumar).
Update (20-Jun-07): You can see the subscription details of this FPO here.
Day I - Retail investors bid for a mere 2.1 lakh shares on the first day of the FPO, out of the available 3.2 crore shares!!!
Day II - The count has improved a little to around a 1.2 million shares, though still light years away from the quota of 3.2 crore shares...??? How many think that the retail portion will get fully subscribed????
Day IV - The FPO finally closed on Friday. Along expected lines, the issue got heavily subscribed on the QIB side, but surprisingly managed to scrape through the retail portion too....now lets wait and watch....whether the stock cracks in the trading sessions to follow....my feel is, it will drop hereon.
You can see the comparative valuations table here and a detailed review note here. (both by Mr.Ashok Kumar).
Update (20-Jun-07): You can see the subscription details of this FPO here.
Day I - Retail investors bid for a mere 2.1 lakh shares on the first day of the FPO, out of the available 3.2 crore shares!!!
Day II - The count has improved a little to around a 1.2 million shares, though still light years away from the quota of 3.2 crore shares...??? How many think that the retail portion will get fully subscribed????
Day IV - The FPO finally closed on Friday. Along expected lines, the issue got heavily subscribed on the QIB side, but surprisingly managed to scrape through the retail portion too....now lets wait and watch....whether the stock cracks in the trading sessions to follow....my feel is, it will drop hereon.
Monday, June 11, 2007
Mega Issue Opens today - DLF
See the demand graph here and here.
Investors are advised not to invest in this issue. The reasons are well-explained by:
1).Sucheta Dalal - here.
2).Ashok Kumar - here.
Btwn, Enam Securities too came out with a report on the Real Estate sector and has rated "DLF" as an underperformer with a price target of less than Rs.420, i.e. a good 15-20% below the issue price.
Update: Rakesh Jhunjhunwala in an interview with CNBC had this to say about the DLF IPO:
Q: Have you invested in the real estate sector at all?
A: I don't have any investments in real estate.
Q: How is that possible, last one-one and half years they have been some of the biggest multi-baggers? You must have had reasons to look at those opportunities and let them pass?
A: It's a very dicey subject. None of the real estate companies pay tax. I don't know how they get their profits. Second thing I also feel that anything, which can be valued as one plus one is equal to eleven; is not what ultimately gives you returns in markets. I don't know, I have never been into real estate bull in my life and wrongly so.
Q: But you have bought a lot of real estate yourself; how come you don't buy those stocks?
A: I have not bought any real estate. I bought a house and office.
Q: Commercial real estate you have dabbled in the past, haven't you?
A: Not at all. That's not my cup of tea.
Q: So you would not be queuing to buy DLF, would you?
A: No I wouldn't.
Q: Why - valuations or innate distrust of the business?
A: I would say valuations, more than anything else.
Q: So you have had a look at it?
A: Yes.
Q: You don't agree with those - slight premium to land bank - those kinds of valuation models at all?
A: Why should I go and buy DLF, I will buy the land only.
Investors are advised not to invest in this issue. The reasons are well-explained by:
1).Sucheta Dalal - here.
2).Ashok Kumar - here.
Btwn, Enam Securities too came out with a report on the Real Estate sector and has rated "DLF" as an underperformer with a price target of less than Rs.420, i.e. a good 15-20% below the issue price.
Update: Rakesh Jhunjhunwala in an interview with CNBC had this to say about the DLF IPO:
Q: Have you invested in the real estate sector at all?
A: I don't have any investments in real estate.
Q: How is that possible, last one-one and half years they have been some of the biggest multi-baggers? You must have had reasons to look at those opportunities and let them pass?
A: It's a very dicey subject. None of the real estate companies pay tax. I don't know how they get their profits. Second thing I also feel that anything, which can be valued as one plus one is equal to eleven; is not what ultimately gives you returns in markets. I don't know, I have never been into real estate bull in my life and wrongly so.
Q: But you have bought a lot of real estate yourself; how come you don't buy those stocks?
A: I have not bought any real estate. I bought a house and office.
Q: Commercial real estate you have dabbled in the past, haven't you?
A: Not at all. That's not my cup of tea.
Q: So you would not be queuing to buy DLF, would you?
A: No I wouldn't.
Q: Why - valuations or innate distrust of the business?
A: I would say valuations, more than anything else.
Q: So you have had a look at it?
A: Yes.
Q: You don't agree with those - slight premium to land bank - those kinds of valuation models at all?
A: Why should I go and buy DLF, I will buy the land only.
Wednesday, April 25, 2007
How serious is this buyback offer? - GTL !
The Board of GTL (the erstwhile Global Telesystems) today approved the following:
GTL Ltd has informed BSE that the Board of Directors of the Company at its meeting held on April 25, 2007, inter alia, has recommended following:
1. Buyback of Company's shares at Rs 300 per share.
2. Set aside an amount of Rs 275 crores for the buyback.
3. The buyback is subject to the approval of shareholders and regulatory authorities.
However there are the few questions that come to one's mind -
1). How serious is this offer given that the current market price is only Rs.185, a good 40% below the offer price?
2). If the company wished, it could have simply bought back shares from the open market, I think SEBI allows companies to buyback 5% of their equity from the secondary market in a year without triggering the open offer.
3). If at all the buyback offer is serious, why did the share price did not witness a substantial increase today?
4). In fact, the scrip witnessed huge volumes today, six times more than the daily average over the last 2 weeks and more importantly witnessed heavy supply at higher levels which resulted in the share price falling down from a high of around Rs.193 to close at Rs.185.
GTL has a poor track-record and was reported to be one of the Ketan Parekh's favorite stocks in 2000-01. After the crash it had witnessed close to 98% price erosion....from a high of Rs.3,500 it fell to as a low as Rs.65-70 per share. And, I think this release on the BSE is completely non-serious. The company is not likely to buy 9.1 million shares @ Rs.300...and spend Rs.275 crore...when it can easily buy the same from the market at less than Rs.200 crore.
Investors looking to invest into this company should tread caution....
GTL Ltd has informed BSE that the Board of Directors of the Company at its meeting held on April 25, 2007, inter alia, has recommended following:
1. Buyback of Company's shares at Rs 300 per share.
2. Set aside an amount of Rs 275 crores for the buyback.
3. The buyback is subject to the approval of shareholders and regulatory authorities.
However there are the few questions that come to one's mind -
1). How serious is this offer given that the current market price is only Rs.185, a good 40% below the offer price?
2). If the company wished, it could have simply bought back shares from the open market, I think SEBI allows companies to buyback 5% of their equity from the secondary market in a year without triggering the open offer.
3). If at all the buyback offer is serious, why did the share price did not witness a substantial increase today?
4). In fact, the scrip witnessed huge volumes today, six times more than the daily average over the last 2 weeks and more importantly witnessed heavy supply at higher levels which resulted in the share price falling down from a high of around Rs.193 to close at Rs.185.
GTL has a poor track-record and was reported to be one of the Ketan Parekh's favorite stocks in 2000-01. After the crash it had witnessed close to 98% price erosion....from a high of Rs.3,500 it fell to as a low as Rs.65-70 per share. And, I think this release on the BSE is completely non-serious. The company is not likely to buy 9.1 million shares @ Rs.300...and spend Rs.275 crore...when it can easily buy the same from the market at less than Rs.200 crore.
Investors looking to invest into this company should tread caution....
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