All posts by : Nergis Parikh

The Market Cap is down to just Rs 100 crs at 20% lower circuit today at Rs 23.85

It’s Fall commenced in 2015 uprooting Shareholders Wealth dramatically from Highs of Rs 550 in Feb 2015 when Market Cap was over Rs 2300 crs ! ~ it’s a wipe-off of over 95% in Wealth!!! like you’re left with just Rs 5 from your original Rs 100 !!!

Now Children have been uprooted with Centres being closed overnight

I had blogged extensively on this debacle over a year ago on November 27, 2015 with specifics on how there appeared to be cloudy money payments & accounting jugglery in the accounts.My Training Sessions cover Tree House when discussing Corporate Governance & Interpretation of Financial Statements when assessing Value vs Price

Tree House Education up Shit Creek & Down Market Big Time at Rs 169

Did not the  FPIs, Private Equity Funds & Venture Funds question this when investing Hundreds of Crs in the Company…. and how did Independent Directors & Auditors allow all of this…. & how did all such risk miss the eyes of many a Fundamental Analyst when recommending this for Investment !!! 

Shareholders Proxy Firm SES ,co-founded by MD & ex SEBI ED, Mr J N Gupta accuses the Company yet again.

They had raised similar suspicions in 2015 

Message Boards of Stock Portals went ballistic on Tree House last two years with many supporting a turnaround at Rs 150 & Rs 200 levels that it had dropped to end 2015 from Rs 550+ levels.Either they were paid stooges or simply living in Hope in the Squeeze of a Boa Constrictor.2016 actually tightened the squeeze leaving shareholders gasping for breath,dropping from Rs 175 levels beginning of the year to now just Rs 24 & falling.There’s a cloud on the merger too with Zee

And just look at this ironic Shareholder data !

March 2015 ~ 5300 Shareholders at Peak Highs of over Rs 500

December 2015 ~ 13552 Shareholders at Turnaround Hope @ Rs 175

September 2016 ~ 20577 Shareholders last notification count

Clearly Many Investors love standing in front of a Speeding Train ! ~ The Faster the Speed of the Fall the More Join in to commit suicide ! ~ Living in Hope only to Die in Despair ! ~ Sadly most of them could be Retail,sucked in by Positive Views on MessageBoards & by Experts on  Stock Portals & Channels

Earlier in 2013 I had lamented & even loudly warned on the blog (Checkout Category Kingfisher Airlines~ Machiacellian Mallyas) ,in my Forum Speeches & Training Sessions that over 240000 shareholders of Kingfisher Airlines should critically revisit their Investment before it was too late as to me it was simply an Airline that never really took off ! ~ Shareholders remain Holed up in a suspended scrip (last restricted trade was just Rs 1 in June 2015 when it was finally fully suspended even from restricted Trading after initial suspension from December 1,2014 ) while the Promoter Mallya is holed up in London ~ Tagline of my Blog “In India,Companies may Fall Sick but Promoters rarely do!”

TreeHouse & Kingfisher Airlines ~ Both Initially Hard Hypes with a Hard Crash landing ~ there are many like this ~ Reliance Power for one ! ~ BAM ! is the Acronym of the Promoters of such !

It’s not just the Children who love playing :

‘Ring-a-ring o’ roses,
A pocket full of posies,
A-tishoo! A-tishoo!
We all fall down”

Sad !

Update on Monday, December 19, 2016

Whoa! Treehouse & it’s Promoters now accuse the Zee Group of committing a fraud on it with the conspiracy to kill Treehouse as a business.

They have stated this in their clarification notification to the BSE,NSE & MCX

Zee has called off it’s proposed merger with Treehouse

What’s it with this letter ‘T’!? ~ Tata Group is in an unprecedented controversy to remove it’s Chairman with hostile aggression & a lot of muck flows to & fro ~ Now’s it’s Treehouse being uprooted ! ~ Which is the next T ! ~ there you go ! reaching out for all the Listed ‘T’ Companies !

Feel really sad for the minority shareholders of Treehouse ~ they’re trapped with Treehouse at 20% lower circuit even today at Rs 19 ! ~ some have invested life savings in it,as I just learnt !

Will it revive,rather be allowed to,as promoters claim fraud on it ? ~ The overseas controversial Valeant Pharma comes to mind and how it got decimated inside a year too & is fighting to revive despite Warren Buffett thrashing it & Charlie Munger even going harsher calling it a sewer !

Sad !

Disclaimer at the Outset ~ This Blogpost is not a Recommendation but only an endeavour to interpret what is in the public domain given the latest developments  & to thus spell out risks that have played up. I intend to showcase this at my Equity Training Sessions 

Toll Free Court Order has Noida Toll Bridge Toiling down over 35% to Rs 14

I have never been a fan of Noida Toll Bridge for many years now for two straight reasons :

1-Corporate Governance ~ In November 1997 a Service Concession Agreement for the Noida Toll Bride and Mayur Vihar Link Road was entered into by the Company,it’s promoter IL & FS & NOIDA,UP Govt.Its been a huge controversy since inception in both granting the Concession to IL & FS company Noida Toll Bridge & the subsequent padding of  recoverable Project Cost which incredulously kept being padded every year even after completion because of the absolutely deliberately lenient Agreement Terms that allowed this for any designated returns ( a high 20% pa) that were not attained in the year.There was no cap on Operational Costs too in the Agreement & this allowed the Company to present poor returns and thus pad up project costs to be recovered.Much of the Operational Costs found their way into higher Salaries,Commissions & Perks for the retired IAS Officers who had founded IL & FS and this Company. The Spirit of the PPP was severely dented .Private Benefits at the expense of the Public.Project Costs that should have been @ Rs 200 crs balloned to over Rs 408 crs & then padded up to over Rs 1000 crs !….it was a unprecedented CAGR of designated returns yet to be recovered ! that allowed the company to collect till infinity even beyond the at least 30 year concession granted in the November 1997 agreement.It was only last year on July 9,2015 a modified agreement froze the amount payable as on March 31,2011 & terminates the Agreement on March 31,2031.The Company also has development rights under the Agreement but it has not yet recognised these in their Financial Statements.These could amount to Hundreds of Crores in itself.

2-I saw it as a range bound stock with no serious capital appreciation and just dividend yield, as it’s model was simply just toll collection &  then dividend payments once it broke out in 2010.Predictable Flows & DCF captured the range valuation. The expectations of non linear flows through recognition of Development Rights did inflate share price once or twice but till date this has not happened & given Allahabad court order to stop charging user fees now arises a ? mark if at all will they arise.The Court however has upheld the Concession Agreement but ruled inoperative the collection of any levy or Toll Fee

As a Trainer of  Equity Valuation had wondered why several years ago  it was introduced heavily in a PMS  which later was converted to a MF.I have observed that the MF exited their full 4.7% holding of 87.48 lakh shares in the past week  High Dividend of 30% on a Share Price then of @ Rs 25 did give a high Tax Free Dividend Yield of 12.5%.But the Price Erosion has wiped out significant Principal Investment   

It’s Funny the Company’s FY 16 Annual Report on Page 33 shows this as sold on January 29, 2016  and that the MF had a nil holding at March 31, 2016!The Volumes on NSE & BSE do not support this & neither were there any Bulk or Block Deals in January 2016 

Interesting Extracts from the Auditors Report in FY 16 Annual Report

The Auditors are Luthra & Luthra & these two segments of their Report in the FY 16 Annual Report caught my eye

1. EMPHASIS OF MATTER We draw attention to Note 2(b) and 27 of the consolidated financial statement wherein significant elements of the financial statements have been determined based on management estimates(which in turn are based on technical evaluations by independent experts). These include a. Intangible Assets covered under service concession arrangements carried at ` 53,736 lacs (75% of the total assets), the useful lives and the annual amortisation thereof;b. Provision for Overlay carried at ` 1229 lacs in respect of intangible assets covered under service concession arrangements; Our opinion is not modified in respect of these matters.
2. g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: i. The Consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the Group– Refer Note 29 to the consolidated financial statements.

How can we Interpret this in view of the Allahabad Court Ruling to make the DND Toll Free

1 -Emphasis of Matter

The Auditors have not qualified their report but their saving grace has been including the Management estimated Valuation of Intangibles as an Emphasis of Matter.This Intangible is the ‘Right to Collect Toll’ and as on March 31,2016 had a carrying Value of Rs 537.36 crs.View this in context of Networth  of Rs 518.60 crs &  Total Fixed Assets of Rs 553 crs.It shoots across Networth Value & is 97% of the Fixed Assets !

The Modified Terms of the Concession Agreement as on July 9,2015  now freezes the Amount to be Payable to Company or Recoverable by them  as on March 31,2011.It also states the termination date as March 31,2031 when the Company  has to hand over Bridge to NOIDA Authorities

FY 16 shows  Toll Collections were Rs 111.69  crs,@ 84% of Total Income of Rs 133 crs +.FY 16 Operational Profit before Tax was just over Rs 60 crs but largely reversal of Deferred Tax benefit of Rs 23.4 crs  has propped up PAT to Rs 82.4 crs .This reversal is on account of change in useful life of assets & a certain portion of timing differences reversing in respect of depreciation during the tax holiday period .This leads to an EPS of Rs 4.43 on an Equity (FV Rs 10) of Rs 186.20 crs.Company has maintained dividend at 30% split equally in FY 16 between Interim & Final.In FY 15 the Interim was Rs 2 while Final was Rs 1.Dividend Payout was over 65%

Two Straight Impacts of the Allahabad Court Order,unless the Supreme Court grants a stay,  is that Company now cannot charge Toll Fees & thus will loose out nearly all Revenue Income Cash Flows imparing both it’s ability to pay Dividends as well as the carrying value of Intangibles. The Company’s policy is to assess the Value annually or even sooner if an event indicates it must. The Court Order is this event and the Company must assess, and Auditors must reassess the carrying Value of Intangibles of Rs 537.36 crs as on March 31,2016. Auditors have to revisit their Auditors Report on such a material post Balance Sheet event in that can they rely on the Management’s assessment !.Half Yearly Results at September 30,2016 have to disclose this court order & it would be interesting to see if financials are indeed adjusted for this & how would the Auditors opine on this.It no longer can remain just as an Emphasis of Matter   

2- Impact of Litigations

The auditors have stated this

“The Consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the Group”

Really? …. the phraseology is interesting.Certainly the Statements ‘disclose’ the litigations but their ‘impact’ on Networth or on sustainability of operations is not laid out clearly for obvious reasons 

Note 29 of the FY 16 Consolidated Accounts referred to in the Auditors Report reveals a host of litigations of which two significant ones are

~ Income Tax raising a demand for Rs 196.47 crs in FY 16 & Rs 424.73 crs for earlier years largely on account of addition of arrears of designated returns (explained above) recoverable from future toll revenues …that’s a whopping over Rs 620 crs ! ~ no provisions have been made as the Company believes that based on legal opinion the outcome of appeals will be in favour of the Company

~Public Interest Litigations have been filed in the Allahabad & Delhi High Courts to make the Bridges Toll Free.Company believes that there is reasonable probability for success and at this stage there is no financial impact

Wow ! now that Allahabad Court gave it’s order of October 26,2016 in favour of Federation of Noida Resident Welfare Associations ( FONRWA) who had filed the PIL the Company’s ‘reason to be’ is in question. The Company’s Board of Directors & Promoters can no longer continue to state that they believe they will succeed in litigation. Auditors might just need to question if in light of developments can they audit it as a Going Concern!

The Company has send this Notification  on October 26, 2016 to the Exchanges

“As has been disclosed in the annual reports of the Company, the local resident welfare associations (Federation of Noida Resident Welfare Associations FONRWA) had filed a Public Interest Litigation in the Allahabad High Court challenging the validity of the Concession Agreement entered into between NOIDA and Noida Toll Bridge Company. The PIL had been filed in the year 2012.

The Honourable High Court of Judicature at Allahabad has pronounced its judgement today at 4pm. The judgement although upholding the Concession Agreement has held the two specific provisions relating to levy and collection of fee to be inoperative and has directed the Company to stop collecting the user fee thereby making the facility Toll Free. The Company in compliance with the Judgement of the Honorable High Court of Allahabad has stopped collection of user fee subject to the outcome of its appeal against the said judgement before the Hon’ble Supreme Court of India. The Company is in the process of filing an appeal with the Supreme Court, against this judgement. The rights of the Company to the DND under the Concession Agreement remain valid and remains asset of the Company.”

On October 28, 2016 it again send this Notification

The Company has filed an appeal before the Hon’ble Supreme Court of India against the judgement of the Hon’ble High Court of Allahabad in case of FONRWA Vs NTBCL that had been delivered on October 26, 2016.

The Appeal has been admitted today by the Hon’ble Supreme Court of India and an interim order is expected to be delivered after the Hon’ble Supreme Court resumes after the Diwali break.

Conclusion

As it appears with the Allahabad Court Ruling to make DND  toll free,the Carrying Value of Intangibles of Rs 537 crs stands fully or considerably impaired thus wiping of networth & most of Company’s Revenues

The Future depends on the Company’s success in the Supreme Court & the quantum of development rights that it recognises in the Accounts & in my view resolving IT Disputes which are huge in quantum

Otherwise this Toll Bridge becoming Toll Free would have taken it’s Toll on the Company reducing it to being without Assets & Revenues & only IT Disputed Liabilities !

I observe some brave support and buying ,even  bulk deals,at @ Rs 14  but do know the Risks….typically the Conservatives get out as did the MF and the Aggressives are  getting in to play the High Risks now as they did several years ago in the tragic Global Trust Bank debacle !….not saying….just reiterating risks involved

As I stated at the beginning ,I have never been a fan of Noida Toll Bridge & for those who were in it as a Value & Divdend Play have seen Value eroded as Litigation Risks play up

September 2016 Shareholding showed over 81000 shareholders had faith in this Company,including a host of Indian & Overseas Institutional Funds ….that was before this October 26,2016 Allahabad Court adverse ruling

I see a few airing views that such an adverse Ruling is not good for the success of  present & future PPP Ventures and Private Participation in such will be difficult to attract given such risks playing out. The NOIDA Resident Associations should drown this argument forcefully in that this PPP Venture Agreement  was an exception & was atrociously flawed right from the inception in that it the Company itself was the Executor & Judge in issues.It required a PIL to clip wings

On a Broader Issue of Retail Investor Education & Protection that continues to nag me is that unless the Exchanges seriously take up proactively & reactively  the matter of  seeking Clarifications and interpreting Company replies in depth to seek further clarification & also interpreting Company Notifications more seriously and following up in depth with the company rather than just accepting what the Company sends and posting on their websites ,Retail Investors will remain vulnerable to the pitfalls

The Matter is now in the Supreme Court & despite any Interim Order,the matter would become Long Term ….. & even a Long Term Value Fund has voted to take the loss & not remain Long Term in it 

That’s the Beauty of Equity Markets ~ There are Risk Takers & then there are Risk Takers !   

Subex @ Rs 11  & thus available around par of FV Rs 10 ~ Five Questions that come to mind?

First a bit of background of Subex that got grounded bad from a high of Rs 887 in 2005 to a low of Rs 4 in 2013 before sputtering to show some life crossing Rs 18 in 2015 & again correcting sharply to below Rs 10…. It’s showing some life again with Market Cap moving up to @ Rs 550 crs & huge Volumes .It’s in the Telecom Software Products space providing Business and Operations Support Systems (B/OSS) to Communication Service Providers (CSPs) across the Globe.

If you’re training with me you’d know how to look at it now…. just listing in brief the five points I’m looking at :

1. Management ~ Its now 48 year old Surjeet Singh, ex CFO of Patni Computers managing Subex.He’s the CEO & MD & has a Cost to Subex Group Package of over Rs 5 crs. Till September 2012 it was the 1992 Founder Subhash Menon who ran the Show and even remained Director till 2015. Menon’s Rise & Fall Story has been covered in some interesting detail by Forbes in November 2012 .Do even read the Readers Feedback to the Forbes Article. The Board also has Sanjeev Aga, ex MD of Aditya Nuvo & Birla ATT (Idea) & Anil Singhvi of Ican & earlier known for his long tenure with Ambuja Cement. He also was an advisor for two years with the Reliance ADA Group & advised on the Enam Axis Bank Merger. The Promoter Category shows a few investors with a very low stake.In fact many  others especially FPIs have much larger stakes & a few were allegedly instrumental in Founder Menon’s ouster because of the Syndesis Acquisition debacle that crippled Subex. The suspicion was that there was more than meets the eye in this US $ 165 m acquisition & it’s funding by US $ 180 m FCCB 1 (See below) ~ Question : What’s Surjeet Singh’s strategy going forward to address the challenges that yet remain & scale the Topline & Bottomline significantly ?     
2. Networth Jump with FCCB Conversion ~ Networth has jumped from Rs 209 crs at March 31, 2015 to Rs 727 crs at March 31, 2016 as Company revised FCCB III Conversion price downward yet again from Rs 22.79  to Rs 13 on May 14 2015.This attracted near full conversion of the FCCBs taking the Equity from Rs 182.92 crs to Rs 502.81 crs in FY 16…. These FCCBs were the huge Debt overhang in the Balance Sheet.The Book Value thus became Rs 14.46 on March 31,2016 with the Balance Sheet showing very little Debt with just US $ 6.95 m o/s on all FCCBs I ,II & III . The FCCB Story commenced 10 years ago in 2006/7 when 2%  FCCB I for US $ 180 m was issued with Exchange rate fixed at Rs 44.08 & Conversion at Rs 656.20.In 2009/10 a restructuring proposal of FCCB 1 was offered at a 30% discount to Face Value.Those who held US $ 141 m face value FCCB I accepted & were issued 5% interest per annum, payable half yearly US $ 98.7 m FCCB II with exchange rate fixed at Rs 48.17  & Conversion at Rs 80.31.Redemption date was the same at March 9,2012 which RBI extended to July 9,2012.However another restructuring offer was made in June 2012 to FCCB I & II Holders & most (US $ 38m of the 39 m FCCB I o/s & US $ 53.4 m of the 54m FCCB II o/s) accepted it in July 2012 & were issued 5.7% interest per annum payable half yearly FCCB III for US $ 127.72 m with exchange rate fixed at Rs 56.0545 & Conversion Price at Rs 22.79 with maturity date of July  7,2017.On May 14,2015 the Conversion price was reset on these FCCB III to Rs 13  ~ Question : Though the FCCB Mess has been resolved where lies this High Networth & how is it going to be serviced?
3. Goodwill on Consolidation ~ The Networth lies in the Carrying Values as on March 31,2016 of the Investments of Rs 647.39 crs made in Subex(UK) which contributes nearly all of topline & of Rs 124.96 crs (lower by Rs 54.90 crs) in Subex Americas Inc.Consolidated Accounts throws up these Investments in the Goodwill on Consolidation. Company has,and new auditors, S R Batliboi & Associates(Previous was Deloitte Haskins & Sells) have accepted the continuing Goodwill Value of Rs 670.36 crs for UK & the fresh assessed Rs 97.26 crs for Americas (down by Rs 88.70 crs from the Rs 186.06 crs carried till FY 15). Company views this as fair based on their assessment of operations  & cash flows going forward & even external valuations ~ Question : These are Intangible & carry risk of Impairment going forward & thus are they yet being overstated even now ?
4. Topline ~ Sales continue to hover in the Rs 320 crs to Rs 360 crs range last four years despite regular annual report noises on the potential of  mobile telephony going forward.Bottomline remains relatively insignificant even as FY 16 generates Rs 50+ crs and an EPS of Rs 1…maybe enough to service stakeholders like Employees & Working Capital Lenders but what about Shareholders~ Question :Even assuming lower Interest Burden with the FCCB Conversions & less risk of Exchange Fluctuations how would such a flat growth topline generate enough bottomline to service the Equity of over Rs 500 crs now?
5. Subsidiaries Outstandings set off sought from RBI~ Standalone Financials as on March 31,2016 reveal Trade Receivables,net of Doubtful Debt) from Subsidiaries  at Rs 412.73 crs &  Payables at Rs 441.28 crs.Company plans to apply to RBI to allow them to set these off. No Accounting adjustment has been made for these & neither have Auditors qualified their Report on the Standalone Accounts though they have drawn attention to it as an Emphasis of Matter ~ Question : That these have grown so huge on either side over the years without being settled does it signal at least a part being accommodation entries?

Remember how I had analysed & exposed Geodesic in 2012/13 at @ Rs 10 & with huge FCCBs too when many were floating it as multi-bagger potential to cross Rs 100. It dropped to under Rs 2 & has since been suspended from trading         

Over 600 Employees yet believe that Subex will Turnaround under Surjeet Singh… Question is do you as a Potential Investor ….or is the risk a bit too adventurous for your profile…. Subex has little long term debt & is showing a positive bottom line now …. well the FCCB Mess certainly has been cleared up but at the cost of FY 16 creating an additional 32 cr shares which already created a selling momentum after the conversion… some yet may have to be sold off.

This is anybody’s & everybody’s share now with insignificant Promoter Holding…. There are many who jumped in excitedly at Rs 18 last year & saw their Investment halve in quick time on selling pressure created by additional 32 crs created from August 2015, earliest effective conversion date was in this month ,on the FCCB III.Remember these FCCB Holders had already faced 30% Face Value Loss on FCCB II issue  + Exchange Loss from original Rs 44 & then Rs 48 & then Rs 56 when current rate is @ Rs 67 …. and shares converted at Rs 13 would surely have been crying to sell at Rs 18 to recover some loss for the holders!…. Now there are many yet aggressively buying in at Rs 9.50 to Rs 11… Volumes & Price Trends are telling some story…Selling Pressure seems to be ebbing

Anybody interested in acquiring  majority stake in Subex? will cost you under just US $ 45 m or under  Rs 300 crs (@ Rs 67 ex rate)  for a 51% stake & you’ll get a Rs 350 crs topline company with little debt & in profits & servicing  most of the leading Telecom Operators & Communication Service Providers worldwide…and the Book is near Rs 15 with very little equity dilution remaining on account of remaining FCCB conversion…. you of course need to believe the carrying worth of Investments in Subex (UK) & Goodwill on Consolidation shown because of it… you would also need to believe in Surjeet Singh’s exclamation in his statement in the FY 15 Annual Report that it’s Inflection Point & all at Subex are very excited about the road ahead

Would love to have you at my Fundamental Equity Training Workshop…. there’s one scheduled for the full day on Saturday,September 10,2016 in Bangalore where more such case studies will be analysed & debated on Price vs Value… details will come up shortly

Update on evening of June 23, 2016 

Been getting quite a few calls & messages today for this Subex post… let me make it clear… I have merely spelled out the facts & questions that came to my mind especially on the risks … I have not offered any opinion on whether one should buy or hold or sell Subex… that is left to the reader based on his risk profile & conviction & confidence levels… as for Geodesic, I am not comparing the two to spark fear or warning… just that in the past I have raised issues with IT companies that went on to strangle like Geodesic, Cranes, Aftek & Teledata… in Geodesic & Subex there were both FCCB debt overhang + huge amounts due to & from subsidiaries… Subex has cleared the FCCB mess & is planning to set off subsidiaries balances if RBI approves…. my blogposts are not for the purpose of one upmanship or to ridicule… I just put out some fundamentals & risks that I perceive ….. readers can hold a contrary view on the risks…. any downside or upside is for the reader to conclude

How can BSE even have allowed Sang Froid to be directly listed from October 2015 ! ?

Bulk Trades ~ Lakhs of  Shares Trading Volume ~ Buy Reco being circulated under Share Khan Premium Service  with website as sharkhan.in  which just flashes on your screen repeatedly!!!

PLEASE STAY AWAY FROM SANG FROID LABS

SEBI must investigate how BSE allowed this Listing & the trading patterns in it….Wonder if  the Broking Group Sharekhan  & Pharma Co Ajanta Pharma will ignore that their names have been misused liked this for recommending Sang Froid…..I don’t believe Sharekhan has recommended this….& I dont believe Ajanta Pharma is associated with this company in any way let alone it being recommended as a Venture with it !

Right Now  this the Trap being set on the BSE Counter for Retail Suckers to buy into  with the reco on mobile circulation stating to buy 10000/20000 shares for  immediate rise to Rs 12/15 in just two days  for this Ajanta Pharma Venture !…Oh ! Stoploss of Rs 7 recommended too !

This Company does nothing ! though it says on it’s website it wants to do this and that !…suppose to be in pharma….has no real business….At March 31,2014 it had no employees (Employee expenses  were only Rs 48000! & Revenue only Rs 1.75 lakhs).KMP were Ajay  & Vijay Kumar Sachdev & and Jitendra H Gohel.

Equity Issued & Subscribed was Rs 5.1 crs but paid up was just Rs 2.80 crs which included forfeited shares.The Negative Reserves were Rs 2.88 crs giving a negative networth at March 31,2014.The auditor was a Delhi Proprietory Firm M Madan & Co who signed the FY 14 Accounts in New Delhi on August 30,2014.There are barely any other Assets & Liabilities

FY 15  Statements show a different auditor,Ahmedabad based Proprietor S Kansal &  Associates who signed the FY 15 Statements in Ahmedabad on April 14,2015,within a fortnight of year closure

The Equity now shows Rs 5.1 crs & Negative Reserves are now lower at Rs 2.02  crs given a positive Networth of Rs 3.08 crs which has been applied to Short Term Advances of Rs 1.42 crs & Other Current Assets of Rs 1.7 crs ~ no info on how the Negative reserves dropped so much given that topline & bottomline figures are worse than Lemon Juice Collections by a Street Vendor !…how did subscribed equity of Rs 5.1 crs which was paid up just Rs 2.80 crs become paid up Rs 5.1 crs?

52 Week High was Rs 24.40 on january 8, 2016 and  current levels of Rs 8.7 are near lows

DON’T GET SEDUCED OR TEMPTED

WHY IN THE HELL HAS BSE ALLOWED THIS LISTING !  

Hey BSE CEO,Ashish Chauhan what’s Happening here ! ? 

PS  

Sharekhan,who’s name has been used to bulk recommend this on mobiles has issued a warning that they are investigating who is behind this….BSE Platform continues to be misused,and I daresay deliberately allowed to do so, by such Listed Companies that ought not to have been allowed listing in the first place   

Tree House Education up Shit Creek & Down Market Big Time at 20 % lower circuit today of Rs 169

70% of Wealth Destroyed in nine and a half months from 52 Week High of Rs 548 on BSE & Rs 559 on NSE recorded on February 16, 2015

No Kidding ! & Excuse the Pun !

It surely is a terrible Friday for Geeta & Rajesh Bhatia who created the Company

Trading Volumes are 10 times the daily average past two weeks indicating huge and relentless selling

52 Week High on BSE was Rs 548  mid Feb 2015 and today’s Rs 169 is the 52 week low…. NSE recorded a 52 week high of Rs 559 in mid Feb 200

Look at the the Irony! CARE has upgraded their long term debt rating from A- to A

But Markets have downgraded them big time!

So the Big Question ? Why this Big Sell Off today!?… BSE recorded 2.44 lakhs shares with 42% delivery while NSE recorded over 13 lakh shares with @ 50% marked for delivery!

It  must have to do with loan topping by the Bhatias 

The Company’s Long & Short Term Debts of Rs 59 crs & Rs 119 crs as on September 30,2015 are secured by Company Assets & September Networth is Rs 679 crs giving a Book of Rs 160 a share

Long Term & Short Term borrowings are secured by mortgage of Land, building, office premises, hypothecation of movable assets, book debts, both present and future of the Company.A part of the short term borrowings are also secured by a fixed deposit.Nowhere does the FY 15 Annual Report state that such borrowings are also secured by Promoter Pledge of Shares.So for what Loans have the Promoters pledged their shares ? Private?

PBV is heading below 1 from credible and solid levels of 3.5 earlier in the year.Company makes monies and raised dividend to 20% in FY 15 though there was some controversy on the high value of Receivables which was clarified by the Company as staggered payment by clients for K-12 Revenue Stream and accepted by Stakeholders Empowerment Services (SES) who had raised the query

So then what is the nature and purpose of the loans taken for which the pledge has been made by the Bhatias to the lenders like Ambit Finvest,Capital First,STCI Financial,Kotak Mahindra etc ?

Bhatias own 29.97% of the Equity of Rs 42.31 crs at September 30,2015 holding 12680069 shares of which they had pledged  5482000 or 43.23% with the lenders

Their latest notification to BSE reveals 6467000 shares pledged . As Tree House Share Price kept crumbling they were forced to provide additional security and create further pledges and encumberances on the same loan.In October & November 2015 an incremental 985000 additional shares were pledged .Now 51% of the shares Promoters hold are pledged …. Rajiv Bhatia has pledged nearly all his holdings and some held by  wife Geeta Bhatia

And the Price has cracked further this week  to close on lower circuit at Rs 169!

What will they do !? They will have to pay off or top up additional securities.The unencumbered ones are largely in Geeta Bhatia’s name in Tree House Holdings

On Red Alerts Such Lending will find it’s way  fast & furious to Lenders selling off into the markets the shares pledged to recover their loans

That’s what seems to be happening on the Exchanges ~ Lenders seem to be offloading pledged shares and with them panic sell off by other shareholders too …and there are no Buyers to absorb and hence Price is Cracking up!

Just in the last fiscal year of  FY 15 Tree House had made a QIP at Rs 440 to several FPIs and raised Rs 200 crs for expansion ! Shareholding pattern on September 30,2015 shows 37 FPIs holding 9007571 shares constituting 21.29% of the Equity….. they too must have got seriously unnerved and must be dumping

My single thought is what are the quantum of this lending given that Promoters had pledged 64.67 lakh shares to date, 51% of what they hold !?…. assuming a Price of Rs 250 last week it would amount to @ Rs 160 crs value and with a haircut would imply Loans taken of @ Rs 125 crs !…. the pledged shares at @ Rs 169 have sunk to a value of under Rs 110 crs…. This would mean another Rs 50 to Rs 60 crs of topping required and this would mean another 60 lakh shares & if done would mean nearly 100 % of Promoters holdings would have been pledged !…. however if Lenders have offloaded pledged shares into the market in the past few days like it does appear then loan outstandings would have come down and a full Promoter Holdings pledge may not be required

What were these loans used for !? Why cannot the Bhatias repay them? If Loans are for Company Operations,then have they got Cash Flow Issues as reflected in High Quantum of Receivables that had raised an alarm that was quelled for the time being then by being explained away…. is this a case of prebillings or at worst overbilling or phantom billing (floating around that the numbers of pre school centres don’t add up !) !… their explanation then was that K-12 Billings were in the Receivables that were contracted to be paid in parts over a longer three year duration!…. in which business does one render service or sell products now and collect some part after three years !…. their half year presentation has a separate slide for the Flow of Receivables,an addition surely because of the alarm raised in September 2015…. Another Issue  with this K-12 Revenue Stream is that it appears Tree House has been unable to expand the Number of Schools on this stream in the past few years. The number of Schools has remained static

Tree House also needs to be more accountable and transparent  in the Rs 140 crs interest free deposit given to a Trust for 30 years in return to provide education services to all it’s schools….what sort of arrangement is this ! ?  Name the Trust in the Annual Report and disclose how much income on services provided has Tree House earned from this arrangement ? It has to be substantial to justify such a huge Deposit and definitely should be much higher than Rs 14 crs assuming even a 10% return on such funds which would see the EPS jump by Rs 3.3 and net post tax a tad lower …FY 15 Tree House showed a PAT of Rs 60 crs and an EPS of Rs 15 + on Equity of Rs 42 + crs . Here’s the extract from their FY 15 Annual Report on this….is it one trust or more than one trust  as the wording below uses both singular and plural for trust ? Also the wording states exclusive rights for ‘ALL” schools but also states  the company is rendering services to ‘MOST’ schools of the trust !…ALL or MOST ?…also important is to know what the trust id wih the deposit to remove suspicion of  any route back

“The Company has entered into an exclusive facilitation service agreement with various educational trusts in accordance with which the Company has exclusive rights for a period of 30 years to provide various facilitation services for schools/ courses to be set up by these educational trusts. The Company has paid one time fixed fee to the educational trusts towards such exclusive rights. The fee paid is recognized as an intangible asset and accordingly capitalized as ‘Business Commercial Rights’ in the financial statements. During the financial year 2011-12 the terms of payment for these Business Commercial Rights has been modified with the ‘one time fixed fees’ being replaced with combination of ‘one time fixed fee’ and ‘interest free refundable deposits’. The said deposit has been given under an agreement with the trust for securing exclusivity in rendering services to all the schools operated by the trust. Pursuant to the aforesaid arrangement the Company has given a refundable interest free deposit aggregating to Rs 140 Crores to these educational trusts. The Company is rendering services to most of the schools run by such educational trust. The aforesaid deposits have been classified as ‘Security Deposits’ under the head ‘Long Term Loans and Advances’ of Note 2.14. The aforesaid deposit are good and shall be refunded on the expiry of the tenure or termination of the agreement”   

Big Shareholders & Big Lenders are not waiting to figure this out… when in doubt, Get out!

Tree House being uprooted is unnerving to say the least !... it can happen to the best of us…. one buys it on strong growth potential and sound financials and acceptable  valuation…… a well known fundamental advisory had strongly recommended this repeatedly and even a month ago at Rs 300 levels had advised to hold and not worry…many leading broking houses have been recommending Tree House to their clients…… and do recollect that just under a year ago in December 2014 a host of well known FPIs like Macquarie subscribed  at Rs 440 in a QIP Placement if Rs 200 crs.. as on September 30, 2015 Macquarie continues to hold 2.7% of the Equity &  most of the shares alloted in the QIP

Valuation & Company Financials do not always reveal in time  alarming situations developing  like continuous pledging of Promoter Shares   leading to virtually full pledging of such Promoter Shares and that too not for company borrowings!

Feel Bad for the 6121 Shareholders, including Promoters, as on September 30, 2015…. even if many moved out in time, they sold off to unsuspecting others !

BSE & NSE should ask Tree House to declare current Shareholding Pattern immediately…. in fact such powers should be build into the Listing Agreement rather than wait for quarterly disclosures…. we need to know real time how the September 30,2015 Shareholding Pattern has been disturbed

Rishi Navani is on the Board as a nominee of Matrix Partners India Investment Holdings, LLC  which holds 5097753 or 12.05% of the Equity.He’s the MD of Matrix India Asset Advisors Pvt Ltd  …surely he must be a worried man & surely must know the reason for this fast evolving alarming situation…. Interestingly Matrix had offloaded 3.23% & 1367000 shares  @ Rs 384 on June 1,2015  to reduce their holding from 15.28%.Last year in May 2014 they had sold at Rs 280 levels.One of the Buyers on June 1. 2015 was another FPI, Mondrian who had also subscribed in the QIP and have kept increasing & decreasing their holding right through 2015 as noticed in their notifications and quarterly holdings.Just look at this handwritten June 1,2015 Purchase Notification from Mondrian! How can BSE even accept this!… It is not properly filled up and a signature scratched across with no name from some one in London

These FPIs are playing in and out of Tree House in the short term ~ are they hand in glove ? ~ is there a nexus?  

And Promoter Rajesh Bhatia has been buying too from the markets through Motilal Oswal ! Look at this notification to the Exchange  It says he bought 6000 shares on May 8,2015.The Volume on BSE that day was just 7157 shares with 44% delivery and price opened the day at Rs 394 touched Rs 407 and closed at @ Rs 400. On NSE this day the Volume was just 11248 shares with 45% delivery and the share price opened at Rs 390 touched a high of Rs 409 and reverted to close at Rs 400.Most of the Delivery was taken by Rajesh Bhatia….. Such Purchases by Promoters may be legitimate on paper but raise several questions on creation of volumes and prices!… and he then goes and pledges to the lenders !…. how was he funding such purchases!? from the lenders themselves!?

Goddess Sarawati symbolises Education  & Learning while Goddess Laxmi stands for Wealth…. Wealth Follows Learning…. one need not earn it though the Markets !

So was the Markets just a Valuation game being played out in a nexus and the bubble is bursting!? 

What’s the story of a director resigning and a change in company secretary & CFO earlier this year? Normal Churn!?…. and was the change in statutory auditors from Mumbai based Jogish Mehta & Co till FY 15 to Kolkata based Agarwal & Associates merely to comply with new provisions in the Companies Act 2013 that requires rotation of auditors… and why Kolkata based !?

Phew ! …. this wealth destroyed on the bourses in Tree House has opened a Pandora’s Box it seems!

Am sure the truth will unfold quickly as to what really is the situation !…. and I hope Tree House survives this crisis …. India can only emerge as a superpower if our next gen is educated well right from infancy… Tree House’s has embarked on an objective for this…. just need to have more transperant higher ideals & propriety

Significant  Update on Saturday Afternoon, November 28, 2015

Just connected with one of the Chiefs of the Lenders and what has been conveyed is that No Lenders have offloaded shares but are demanding more margin as the Share Price has dropped.Loan has been taken by Rajesh Bhatia for personal purposes that included creeping acquisition,subscription to company’s warrants and even property.The Pledge Value of Rs 110 crs currently even after the drop more than adequately covers the total lending of @ Rs 65 crs but RBI norms are that at least twice cover should be there for lending against shares

Then who sold off to create this drama?

One or two FPIs apparently have sold off…. Curiously the delivery % on both NSE & BSE  yesterday as pointed out in th beginning of this blogpost is 42% on BSE & 50% on NSE and the share price was hovering over Rs 180 at 2 pm with above normal but just a few lakhs volume….. this would imply that the last 90 minutes triggered off a delivery sell off in which those in the know of big selling coming up must have shorted till 2 pm and then squared off in the last 90 minutes against the huge delivery selling ~ this is clear case of Insider Trading and SEBI needs to investigate!

Sadly our dependence on FPIs continues even as their shareholding can both create and destroy value in havoc situations like this

Rajesh Bhatia has put himself into a vulnerable position and a paradox of sorts…. his company has monies but he does not & thus will not be able to support the price in the market if more FPIs begin to sell off like this !… and he needs to reduce personal loans or top them up coming week

Can Tree House consider a Buy Back ? Well, Sec 68 to 70 of the Companies Act 2013 govern buy back in India and Sec 68(1) clearly states that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.So QIP Proceeds of Rs 200 crs of December 2014 cannot be used and fresh funds will have to be raised or retained earnings has to be the source 

Buy Back is restricted to 25% of the Networth which would compute to @ Rs 175 crs today with Networth @ Rs 700 crs

Company can pass an enabling resolution for buyback over a year. Rajesh Bhatia needs to seriously consider this to reassure all stakeholders not just Shareholders

 Of Course it may be perceived comically that the Company  sold shares in the QIP at Rs 440 and is now seen squaring of at Rs 150 to Rs 200 levels ! even if other funds are used for the buy back than the QIP Proceeds…. FPIs held 90 lakh shares at September 30,2015…. not all will want to exit

But first figure out if Tree House indeed has Genuine Value ~ Objectively it’s Operations suggests it does ~ Subjectively is another matter !

A Mountain of  Immediate Challenges ahead for Rajesh Bhatia :

1. Top up Securities with Private Lenders
2. Stabilise & Revive Share Price of Tree House
3. Assure All Stakeholders of the continuing strength and growth of Tree House & not just it’s survival and genuity

All the best Rajesh !

Disclaimer : Have no other Interest in Tree House other than commenting as above on how the unfolding drama on the bourses has destroyed not just shareholder value in Tree House but also raised questions on motives, mindsets and manipulations that affect the credibility and sanctity of our markets and destroy investor confidence & conviction and wealth !  

Update on Monday Afternoon, November 30, 2015

Treehouse is on lower circuit of 10% since morning on both BSE & NSE at Rs 152.10 & Rs 151.75 respectively

I am told this blogpost in trending on whatsapp groups and message boards on moneycontrol etc without acknowledging credit

Here’s what has been posted by a platinum member chilax on the moneycontrol message board with a disclaimer that it has simply been posted from what’s circulating on whatsapp ! …..this is a huge extract from my above post