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Awards for remarkably different cos!
Mudar Patherya in Mumbai
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February 11, 2008
Welcome to the Academy Awards for the October-December 2007 quarter where we acknowledge the best, the most surprising and the remarkably different!

The VVS Laxman Award for Unassuming Brilliance: Gandhi Special Tubes [Get Quote]

The beauty of this industrial boom is that it brings you respectfully eye-to-eye with companies you would have otherwise dismissed with a creased brow. And so it is in this case, except there is a danger of missing the big picture if you go strictly by the top line.

The company is engaged in the manufacture of welded and seamless tubes as well as pressed, drawn, stamped parts and tubular components.

Over the last five quarters, there has been a reasonable growth in four � from Rs 14.38 crore (Rs 143.8 million) in the December 2006 quarter to Rs 21.6 crore (Rs 216 million) in the December 2007 quarter. Now normally one would have done a quick 'east-west and out' but for some maheen print: GSTL has reported an EBITDA (earnings before interest, tax and depreciation) increase in each quarter, rising to a 44 per cent margin in the quarter just ended.

Forty four per cent! The tax rate is heavy � not a negative in my book � and the magic of a steady increase in quarterly profits is this: a doubled bottom line across five quarters. I'd like to meet its customers sometime�

The Sanjay Leela Bhansali Award for Inexplicable Flounder: Himatsingka Seide [Get Quote] 

If you ask me to name my most respected industrialists, Dinesh Himatsingka will figure on the fingers of one hand. Reasons: when most obsessed with production, he focused on design; when most emphasised volumes, he stressed value-addition; when most asked, "How are you doing in the business of textiles?" he would answer, "We are in the business of luxury." The world admired, analysts fawned, peers emulated.

Himatsingka Seide was up there. EBITDA margin was in the mid-forties, ROCE (return on capital employed) above 50 per cent, and cash awash. Then something happened: it reported a net loss (consolidated) of Rs 5.71 crore (Rs 57.1 million) in the December 2007 quarter, probably its first red in a decade and a half. I am alarmed.

This isn't just any Tommy come today, this is the jewel itself. Is the once cash-flush H-Seide headed for a debt trap? Is this the beginning of an unexpected end? Questions, questions, questions. A complaint: there is not a single line explaining the trough or a probable recovery.

The Ricky Ponting Award for Needless Posturing: KEI Industries [Get Quote]

I am a sucker for fine print in quarterly result advertisements. Is the reporting as per the established template? Is the company saying more than it is statutorily required? What is the nature of this information? Is it directed at enhancing transparency in the general interest of the shareholder? Or is it directed at the prospective shareholder, who is yet to buy into the company?

Consider this extract from the quarterly results of KEI Industries: "Company's new project at Chopanki near Bhiwadi , Dist. Alwar (Rajasthan) for manufacturing HT and LT power cables has started commercial production with effect from January 22, 2008. It will generate revenue of Rs 300 crore (Rs 3 billion) annually at its full productivity." Verdict?

The Steve Bucknor No Explanation Award: Vaibhav Gems [Get Quote] and Moser Baer [Get Quote] (among nominations which include Elgitread and Torrent Cables [Get Quote])

Ek zamaane ki baat hai, but there was a fair admiration for Vaibhav Gems and Moser Baer. Both companies were redefining their spaces, both were international plays, both were profitable, both enlisted international shareholding. Then something happened. The rupee strengthened.

Moser Baer reported a net loss of Rs 20.45 crore (Rs 204.5 million) in the third quarter of 2007-08 compared to a profit of Rs 37.62 crore (Rs 376.2 million) in the corresponding quarter of 2006-07. Similarly, Vaibhav Gems posted profit of a mere Rs 90 lakh compared to a corresponding number of Rs 6.67 crore.

I have no quarrel with the companies' numbers. This may be the result of a genuine air pocket in their respective businesses. However, the issue that I do have is this: if you consider that the management of these companies is but a trustee of public funds, then don't  I � ordinary shareholder � deserve at least some explanation? Some reassurance? Will you just gloss over the decline?

On October 12, 2007, Vaibhav made an issue of GDRs at Rs 230 a share (current price: Rs 115). It's not supposed to be any of my business but curious, just curious.

The Ishant Sharma Award for being the Find of the Quarter: Autoline Industries [Get Quote]

When you appraise the results of Autoline, compare the standalone and consolidated numbers (containing the results of its US subsidiaries). That's where the magic lies.

The first hypothesis: The standalone pre-tax profit is Rs 8.04 crore (Rs 80.4 million), the consolidated equivalent is Rs 13.48 crore (Rs 134.8 million), a differential of Rs 5.44 crore (Rs 54.4 million). The standalone pre-tax profit for the first nine months is Rs 18.24 crore (Rs 182.4 million), the consolidated equivalent is Rs 24.11 crore (Rs 241.1 million), a differential of Rs 5.87 crore (Rs 58.7 million).

Inference: the benefit of the company's international acquisitions has begun to pay off from the third quarter onwards.

Now to the second hypothesis: consolidated EBITDA was Rs 15.77 crore (Rs 157.7 million) in the last quarter; standalone EBITDA Rs 9.98 crore (Rs 99.8 million).

Consolidated top line was Rs 82.91 crore (Rs 829.1 million) in the last quarter, standalone top line Rs 63.04 crore (Rs 630.4 million). Inference: the international subsidiaries reported an EBITDA margin of 29 per cent, almost twice the margin of the company's standalone operations.

Mr Radhakrishnan, can I send you an SMS?

The Anil Kumble Award for a Surprising Batting Performance: SKS Logistics [Get Quote] 

This company is engaged in barge operations, port-related activities, bunker distribution, transportation of petroleum products, mooring and unmooring.

Again, it is not the nature of business or quantum of the numbers that warrant my attention, but their quality. EBITDA margin has been in excess of 40 per cent in each of the last four quarters. During the last quarter, the company reported a top line of Rs 13.49 crore (Rs 134.9 million), an EBITDA of Rs 6 crore (Rs 60 million), made a sizeable depreciation provision, paid fair tax and reported a net profit of Rs 1.56 crore (Rs 15.6 million) on an equity of  Rs 14.50 crore (Rs 145 million).

I am as excited by the company's post-results announcement as I am about its performance: the company is converting one of its 9,600 DWT barges into an offshore accommodation vessel which will be suitable for pipe-laying, accommodating 400 people, equipped with a helipad and 200-tonne crane.

The company will also acquire four multipurpose container-cum-cargo vessels to be run on a fixed schedule on the Indian coast. My sixth sense tells me, there is traction here.

Mudar responds with speed at He holds stock in Autoline Industries. 

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