Bought the company`s stock after reading about it in an edition of Business India. One of the promoters who had toured a pump manufacturing facility abroad got hold of a pump, brought it back and began the process of reverse engineering the same. In 1982, after getting financial assistance from the Madhya Pradesh Financial corporation, the Patidars setup a pump manufacturing facility in Pithampur, Indore with a capacity of 1500 pumps/year. Currently, the capacity of the company is 600,000 pumps per year. IFCI`s Green venture fund currently holds a 12% stake in the company. A darling of FII`s, the company`s distinction of being the first Indian 5 star rated pump manufacturer has really helped it along in the stock markets.
MISC EXPENDITURE
Miscellaneous expenditure for 2008-09 at Rs 80 lakhs, 2009-10 at Rs 1.8 Crs, 2010-11 at Rs 1.05 Crs and 2011-12 at Rs 4.8 Crs. As per Shakti`s definition, misc expenditure includes pre-op expenses, software expenses and deferred expenses on advertisement. Most striking are pre-op and software expenses(separately, a software development expense ranging from anywhere between Rs 5 to 8 lakhs included in Admin expenses also) whose breakdown is Rs 1.7 Crs and Rs 1.4 Crs respectively for the years 2008-2011. Some reservations about this discussed below
1)Why should a pump manufacturer spend Rs 1.4 Crs on software expenses?
2)What is the pre-op expense for? The new booster plant? If yes, then why is the same not mentioned?
3)In Annual reports 2008-09, 09-10 and 10-11, there is a breakdown of misc expenditure while 2011-12 has no breakdown. The investor is made to stare down a huge expenditure of Rs 4.8 Crs without any explanation as to the cause of the same.
Foreign Currency convertible bonds
The company in 2007 had issued $ 6 mi worth of foreign currency bonds which amount to nearly Rs 27-30 Crs. Financial charges/expenses during the issue of such bonds usually amount to 3-5%, but the company has peculiarly charged nearly 11% as deferred FCCB expenses from 2008-11.
Snippets from Annual Reports/Other sources
1)Market development charges go up from Rs 2.3 Crs in 2009-10 and Rs 9.3 Crs in 2010-11.
2)How about this for a vision statement: The Company expects to generate 35% annual revenue growth around 9% net margin leading to a turnover of Rs.500 cr by 2015, strengthening our investable surplus. (2011-12).
3)As of 2011-12 AR, Rs 15 Crs spent on employee benefit expenses, but the investor has no idea about the number of employees working for the company
Low debt combined with good FII interest makes this a decent script to play with, if you had bought it at around Rs 40. The script is currently trading at Rs 56/share. If only the company were more willing to disclose more information about its workings and bring in more transparency about its accounting procedures, this will be a good long term bet. Until then investors can take their money and exit.
DISCLAIMER: I had bought this script at Rs 44/share. At that time, the close was close to being a net-net (market cap>working capital). But seeing the kind of accounting standards being adopted by the company and the lack of transparency, I am just waiting for the script to touch Rs 70 after which I shall happily exit (the promoters have given themselves warrants at Rs 88/share for 1,200,000 shares, amounting to nearly 10% of the company`s outstanding share capital. Mr Warren Buffet will not be happy if he sees this)