The saga continues...its Lok Housing now!

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]

Warren Buffett's Letter to Shareholders for 2008...

...is available here [link].

Berkshire Hathaway's annual report is available too [link].

The two documents are a must read for anyone, aspiring or seasoned investors.

Adv hindsight: Peter Schiff got it bang on in 2006...

...on the US economy and the then still upcoming debt crisis. If the video is for real, then one must give the guy huge credit for being able to see what many of his peers could not even comprehend!



...also have a look at the contemptuousness of the other "experts"... and i thought "dissent" was an ugly word only in this part of the world!

source for the link:
http://www.contrarianvalueinvesting.com/2009/02/03/why-wall-street-will-never-get-it-right/

P&G's official reply...

...to Rohan Shah's letter has been posted on capitalideasonline.com. Click here to access the letter from P&G's Indian representatives and here to read a previous mention of this letter on this blog.

The message implicit in the response is quite simple:

We will do as we please, but nevertheless thanks for taking the pains to write a letter to us.

We appreciate your effort, but you can take a walk.

Heads - I am bruised, Tails - I am crushed...

...where Heads means a company reported numbers that were "either in-line with the street estimates" or were "better than expected", and where Tails means a company reported poor numbers for the just concluded quarter ended Dec 2008.

Further, where "I am bruised" means that the stock witnessed a small decline in price or remained unchanged (more or less!), and where "I am crushed" means the stock is sharply down since the current earnings season began.

Some of the companies drawing Heads include Oriental Bank of Commerce, Axis Bank, HDFC Bank, Wyeth Ltd. etc...where each of these companies reported healthy growth in profits given the current business environment and yet each of them is down by anywhere between 7-20% since the beginning of the year.

Companies drawing Tails include Divis, Reliance Capital, Zee, etc...where each of these companies fared poorly (it wasn't a disaster though!) only to lose a third of their market value in a little more than a months time!

It seems as though stock prices have just one desire - to keep losing value; little by little every week! Looks a lot like 2001-02 and early 2003, isnt it?

Ofcourse, we all know what followed then, dont we? :)