Interesting stock market tactics used by companies

The stock markets are a place where Caveat Emptor(Buyer Beware) applies to its fullest. If you come across any of the below tactics, do 

1. Issue QIP/Decisions just before a major negative event
1. Money Matters-QIP at peak price just before MD was arrested
2. Yes Bank-Issue QIP in Q4'17 before disclosing potential provisioning lapse
3. Axis Bank-MD/CEO reappointment and performance bonus, just before NPA issues
2. Declare results at a very early date after quarterly closing, to attract attention
1. Sanwariya Consumer-Declared Jul17-Sep17 results on Oct 3rd, 2017(Remember Oct 1/2 were holidays) albeit unaudited
2. Kitex-Releasing its audited results for Apr15-Mar16 on Apr 4, 2016!! Surpassed even Infosys. For FY167 however, they released with a month's lag
3. Delay results/ declare results quite late with some bad news/Extend Reporting year
1. Axis Bank-When it declared results for Q2'18 showing NPA slippage
2. Shree Renuka Sugars-Extended financial year to 15months without a clear rationale
3. Commission research report and upload on website
1. CRISIL research(most companies) albeit neutral
4. AGMs
1.  at remote locations to minimize attendance-Inox Wind?
2.  at quarter end/latest possible dates to minimize attendance-Many Cos
5. Glossy annual reports
1.  by firms like TRISYS to simplify business. metrics
2. Focus on extraneous stuff-Temptation Food seductive photos of women.
6. Suddenly start holding conferences presentations, analyst calls etc, but stop it when bad times happen. For example
1. Sanwariya Consumer sudden spurt of presentations, reports
2. Educomp ceasing to update its website after bankruptcy
7. Announce plans with limited execution 
1. DCB Bank retail expansion-subsequently rolled back due to resistance and ESOPs repriced to adjust for this benefits
2. Crompton Greaves-Plans to turnaround/hiveoff units but not done

Tricks companies play to avoid divulging too much to investors in the annual report

After reading around 30 annual reports of Indian listed companies this year, I have come to the conclusion that hardly 10% of the report is helpful. However, one needs to read the entire report to find out which footnote/portion is the most useful.

Typically, the reports follow the standard format of Directors Report(Managerial remuneration, director remuneration, board activity), Compliance Certificate, CSR Annexure and then audit report preceeding the audited financials. For companies with subsidiaries, consolidated financials are presented in addition to the standalone one. An annual report should ideally help one understand the story behind the numbers but this is usually not the case because

1. Companies try and avoid segment reporting citing that they operate in 'one reportable segment'. This even when they claim geographical niches etc.  This helps them avoid divulging data on revenue, EBIT and capex at the segment level
2. MD&A is merely commentary on up/down without insight
3. There is no strategy outline, or even if there is, rarely any connection to long term trends
4. Managerial Remuneration is not justified-rarely are performance KPIs and the scorecard publicly disclosed
5. Even for the particulars of employee remuneration(those earning above 6MINR/year), companies usually exclude it from the report and send it to shareholders on request. This does  not help a casual reader get a feel for the company's HR/remuneration policy
6. Where certain footnotes can be incriminating, companies change the alignment of the text from horizonal to vertical or vice versa. This is the case for segment reporting, related party transactions etc. 

All these can be overcome with diligence but it makes the process more painful. For those of you still interested in reading an annual report, following links may help

Two excellent resources for those interested in reading further
http://www.business-standard.com/article/markets/10-important-things-to-analyse-in-an-annual-report-114041600222_1.html
http://zerodha.com/varsity/chapter/read-annual-report-company/

GMR Infrastructure Annual Report analysis 2015-16

GMR Infrastructure is the poster child of what ails infrastructure in India, and why equity investors often get the short end of the stick despite a well intentioned management. With a family trust resolving succession issues, reputed board members and iconic projects some even being the subject of case studies such as Delhi Airport/Kishangadh highway etc, GMR Infrastructure does command valuation premiums even basis reported numbers, while it trades at a P/BV of 1.6(negative PE multiple). However, it has been mired in regulatory issues(delays in gas linkages to power plants, court ordered delays in hydel plants, Maldives airport nationalization, Kishangadh highway bid cancellation due to 'force majure', CAG audit report claiming undue benefit to DIAL operator and power tariff regulators delayed acceptance of force majure to permit fuel price hike pass through), Some of these have reflected in the audit report with the management refusing to write down asset balances which are clearly doubtful,

The below table indicates that if the audit adjustments were given effect to, the company's reported loss would increase by 74%-172%, while the reported networth will erode by 53%-96%. This shows the importance of perusing the audit report and not just going by reported numbers

Little wonder then, that whenever there are regulatory announcement, the stock price oscillates like crazy. And with a F&O lot size >10,000, it is quite risky for speculators without insider information

Now, GMR is by no means alone as these links indicate. However, it is one of the most detailed and complex cases, therefore prompting me to write a blog post.
http://www.capitalmarket.com/CmEdit/story11-43.asp?SNo=869509
http://www.business-standard.com/article/pti-stories/sebi-exchanges-ask-75-firms-to-restate-a-c-on-audit-red-flags-115070500259_1.html

India Gate manufacturer KRBL annual report-some comments

Recently, I read the annual report of KRBL. Following observations

• Typical 'lala' company with sole propritary auditor albeit quite well paid at 18lakhs, underpaid professional KMP(CFO at 35lakhs and CS at 7 lakhs; cost auditor at 0.5lakh).
• Spent just 10% of CSR budget(!)-prudent financial management :D
• Brand focus with commensurate R&D investments
• Exports are largely to middle east
• However, the company substantiates its leadership posiiton claim with data from AC Nielen on overall, traditional and modern trade market shares. 

Some accounting red flags via unexplained expenses growth in key items not commensurate with sales/explained factors

Amounts in Lakhs

Note	Pg	Item	FY 2016	FY 2015	Variance	Comment
29	149	Internal Auditor's Fees	32.5	20.22	61%	E&Y appointed from 1 Oct 2015, at probably double the remuneration of earlier auditor(Pg41)
29	149	Land, Warehouse & Godown Rent	948.75	278.72	240%	Topline growth only 7%, so this is unusual
29	149	Insurance Charges	144.92	77.95	86%	Topline growth only 7%, so this is unusual
29	149	Testing & Inspection Charges	107.4	28.02	283%	Export Sales growth only 40%(overall 7%) so this is unusual
30.02	150	Auditor Remuneration(Taxation matters)	10.77	1.69	537%	Unexplained auditors payments-red flag

In totality, since the CAGR in revenues, EBIT, PBT are in line, and there has been debt reduction, the company does not seem a risk. However, above is an example of analysis which one could do to identify accounting risk.

Those interested in the annual report can download from below:

http://krblrice.com/fy-2016/annual-report/2015-16%20Annual%20Report_KRBL%20Limited.pdf