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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.

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