Is Geodisic Ltd another Satyam, or merely very undervalued?

Heard of Geodesic? Unless you are an IT sector fan, you probably would not. But if you have ever read Chandamama, used the stock screen chart on moneycontrol.com, downloaded the Mundu app on Apple Store/Nokia Ovi etc, you have used their products/brands. And that is the beauty of the company, its business is focussed on growth areas like security, anti piracy and mobile VAS. The promoters are all engineers with ample industry experience, and have big dreams. Another Onmobile in the making you would say. But the market does not think so. And there are good reasons for that. 

When I first hit upon this stock in the Edelweiss stock screen, it seemed too good to be true. P/E around 1.5, P/BV of 0.44 yet positive cash flows, growing business etc. But still, it has tanked by 30%  in this financial year. Despite a net cash position of around 600 crores(Rs 1282 crore cash as per balance sheet LESS $113.5MM FCCB @ Rs 50/$), the share trades at just Rs 480 crores. When I first looked at the stock in Mar-11, the valuations at Rs 700 crore, were even higher than what they are now. But the market does not believe in it. I found later that

1. The management did not care about investor relations/conference calls, prompting a group of activist investors to cover the issue on their blog here(http://geoinvestors.blogspot.com/). Only after repeated persistence did the company resume the conference calls from Aug-11.  
2. One of the promoters was a co-founder of Aftek, not known for its good accounting practices. 
3. The accounting is error prone(though they DID correct it in time) as exposed by an analyst Nishith Shah from IDFC,  during their Aug-11 conference call(http://geodesic.com/files/investor/financial/reports/quarterly/transcript/Geodesic-Earnings-edited_Aug30-2011.pdf). To their credit, the company boldly fended his queries. But the fact remains that neither the accounts department nor the auditors had detected that error in time.
4. The company despite its huge cash pile has not declared sizeable dividends, nor has invested much in buybacks or M&As. This behaviour has raised issues as to the whether the cash pile is genuine or cooked up like Satyam.
5. They did not utilize segment reporting to its fullest extent. That is why despite the management bromide in the MD&A about growth, analysts and investors could only guess at the actual revenues/profits due to each activity. And when there is uncertainty, especially in this environment, people tend to assume the worst about the company.
6. Surprisingly, while quite a few equity research analysts cover the stock, there are no publicly available equity research reports on the net. On the geoinvestors blog mentioned earlier, it is alleged that brokerage houses demand quid pro quo for publishing research reports on stocks, which this company was unwilling/unable to pay. Because of the lack of research coverage, it would deter even the brave retail investors from buying in.

 The annual report for FY11 throws up some interesting highlights(http://geodesic.com/files/investor/financial/reports/annual/geodesic-ar-fy2010_111.pdf). An important thing is that the auditors have not audited assets worth Rs 1918 crores, relating to the Hong Kong and Mauritious subsidiaries. And tucked away in a note to Schedules 11 & 23, is the disclosure that Rs 1100 crores cash(out of total balance of Rs 1282 crores) is tucked away in non scheduled banks in foreign subsidiaries. One would have thought that to assuage investor interest, the company will atleast name those banks, or give some additional assurance to investors. But that has not been done.

Given the earlier accounting errors as exposed in the Aug-11 conference call, the investors have naturally not put much faith on the cash balances tucked away abroad. Maybe they are waiting for the Rs 565Cr odd FCCB debt to be repaid, before they believe that the stock has any value.

Update:- Post the FY11 AGM held on Sept 30,2011; the company has declared the breakup of its cash balances on this link(http://www.geodesic.com/investors/shareholders_2010-11). That accounts for $247MM. So now, the valuation concerns should hopefully reduce.