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Saturday, September 7, 2013

Gammon 'non executive' director Pervez Umrigar remuneration-will this set a trend in India Inc?

While reading the Gammon annual general meeting(AGM) notice(http://www.gammonindia.com/investors/pdfs/GILnotice-91st-agm.pdf), I noticed an interesting point as described in Item 6-
Mr. Parvez Umrigar, a Chartered Accountant and a Cost Accountant, has been associated with Gammon group and has over two decades of industry experience. Mr. Umrigar was appointed as a Whole-time Director designated as Group Director on the Company’s Board effective from 2nd January, 2013. Effective 1st April, 2013 he ceased to be a Whole-time Director. He however, continues to be on the Company’s Board as a Non-Executive Non-Independent Director(emphasis added)

Item 7 laid out the rationale for the payment as follows-
Mr. Parvez Umrigar with his rich infrastructure industry experience and expertise in the areas of finance and strategic planning continues to guide the Board and the Company’s management on various financial and strategic issues. The Board of Directors (the “Board”) is of the opinion that Mr. Umrigar should be remunerated for the valuable services being rendered by him(emphasis added).

These bring out very interesting points

  1. Since he resigned within 3 months of assuming the executive director post(yet retained his board seat), maybe this was for better prospects since he joined Piramal.  So he did not have the inclination to devote full time attention but is more than willing for part time remuneration, while being involved elsewhere
  2. Guidance on financial/strategic issues(and being paid for that) stretches the boundaries of being a 'non executive' director. Granted that under company law, directors are anyways supposed to do that so remunerate under sitting fees/commissions-why have a specific fixed fee contract for that? Other companies like Dabur award a performance bonus basis objective assessment of the directors contribution at year end, this is an ex-ante process
Now, he's not related to the promoters/management and given his track record, there is not a whisper of impropriety. Still, this sort of arrangement does raise eyebrows, about someone relinquishing a full time position, yet earning a consulting assignment as an non executive director. Yet, with its P/B<0 .1="" albeit="" all="" and="" at="" be="" being="" cannot="" cdr="" circumstance="" company="" contract="" counsel="" culture="" div="" earlier="" else="" ethics="" even="" expert="" financial="" fit="" for="" from="" gammon="" have="" he="" interesting="" issues="" it="" its="" just="" links="" makes="" money.="" nbsp="" of="" part="" price="" probably="" requires="" resignation="" severed="" that="" the="" time="" under="" value="" which="" would="">

Tuesday, September 3, 2013

Vikas WSP-why it deserves its P/E multiple of 1 despite great results

Whenever shale gas discoveries are announced in USA/EU, guar gum prices shoot up(since it is used as a fracking material in shale gas extraction), and then Vikas WSP gets into the news. Punters shoot up the stock price hoping to benefit from the hike in realizations, or from the appreciating rupee, considering that most of the company's sales are from exports. However, those who forget the past are bound to commit mistakes in the future, nowhere is this more relevant than Vikas WSP. Let us see the (in)glorious highlights of this company

    1. FY 2012-13 annual report not available on www.bseindia.com despite AGM notice being filed. I had to download it from http://www.vikaswspltd.in/annual-reports/2012-13.pdf and even this is NOT a complete annual report-it just has auditor's report and financial statements! An elementary omission(or maybe not?)
    2. Auditor remuneration dropped 40% y-o-y without a reduction in activities/scale. Commendable if this is cost cutting, but then what does it hold for audit quality? Incidently, the old firm a Big4 auditor BSR & Co(an Indian member of KPMG) was dropped from 2011-12 onwards, after its emphasis of matter in the audit report.
    3. Inconsistent information. For example. domestic sales of Rs 730 Crs as disclosed in segment disclosure< domestic sales of Rs 558 Crs as disclosed in revenue note.    
    4.  Working Capital position seems precarious with advance to suppliers increasing 25x from Rs 25crores to Rs 563 Crs. While this is backed by customer advances(Rs 170crs in Fy13 vs Rs 120crs in FY12), this is not an encouraging sign.
    5. Lolmax corporate governance/basic lack of knowledge of secretarial procedures:- While appointing a relative as a director, the explanation was Ms. Kamini Jindal has been appointed by the Board as  an Additional Director w.e.f. 16.07.2012. Ms. Kamini Jindal is a person with excellent academic background and possesses good educational qualifications. She is
      Bachelor of Arts and Master of Philosophy. She is the youngest in the Board of the company. Considering and seeking attention and interest of youth
      , your Directors recommend appointment of Ms. Kamini Jindal as Director of the Company
      (emphasis added). For god's sake, why pretend to empower youth? And why omit the (obvious) fact of other family directors being interested in the matter?
    6. Punter driven stock: For example http://mmb.moneycontrol.com/stock-message-forum/vikaswsp/comments/1501
    7. Possible value trap-low Pitrovski score http://www.equitymaster.com/detail.asp?date=06/12/2013&story=1&title=A-sure-shot-method-of-avoiding-value-traps
    8. Probable short term loss due to purchase commitments:- Vikas WSP currently has 60,000 tonnes of guar polymer production capacity which is running full. An additional 30,000 tonnes of capacity is expected to commence commercial production by the end of the current financial year. For 100% capacity utilization, the company requires 70 lakh bags of guar seed which has already been insured. Probably this is what the supplier advance is towards    Against the assured price of Rs 50 a kg, guar seed price has now fallen below Rs 42 a kg http://smartinvestor.in/common/srchoutdet-190588-car-Guar_seed_price_fall_pushes_Vikas_WSP_in_tight_spot.html
    Bottomline, if you are fine with a great performance albeit speculative investors and err.management with political aspirations, then go ahead. Otherwise, in this bear market, such stocks are avoidable for me.