All the facts here are sourced from the 2009-10 Annual reports(
here)
- Exercise price of 2,56,000 Stock options granted in Aug-08 was revised in Aug-09 from Rs 150 to just Rs 40. That is a gain of about Rs 2.75crores for the top management(Note 21 Pg 92 AR09-10)
- They did not renew the Employees Group Gratuity Scheme with the Life Insurance Corporation of India(LIC) and are shopping around for quotes.
Accounting issues are
- Note 15c Pg 89 AR09-10- Writing back the 'excess gratuity provision' since the LIC renewal notice had a lesser amount of accrued provision. This accounting treatment while permitted is aggressive since the company should not dip into its pension reserves to inflate its earnings. The amount taken to P&L is small(around Rs 5Lakh) but reflects badly on the management discretion
- Aggressive revaluation of the fixed assets situated at Jejuri/Sonepat-possibly overstated by Rs 20Crores. . Rs 8 Cr and Rs 12 Cr respectively was revalued in 2007/2009 respectively. Despite the worsening economic situation in 2008 and beyond, the company did not book an impairment charge.
The good thing however is that there are no significant related party transactions.So the chances of siphoning funds from the company is low(unless it is another Satyam). The promoter does seem sincere and competent despite the moral issues at play here. So if we can trust the balance sheet, then this does seem a stock to buy
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