Shakti Met Dor is the market leader in the manufacturer of industrial doors, Investment Advisor Mudar Patherya said in an interview to CNBC-TV18. "The company has recently trebled its manufacturing capacity and posted a significant increase in profits from Q4 FY10."
Below is a verbatim transcript of the interview. Also watch the video.
Q: You do not trust the motives behind this buyback for Shakti Metdor promoters, do you?
A: No, completely not. There is much more than what meets the eye. For years this company was doing reasonably okay but if you see the results of the last three sequential quarters—not corresponding quarters—Q2 of the last financial year, they have reported an EBITDA of Rs 1.93 crore; Q3 they have reported an EBITDA of close to Rs 4.06 crore and last quarter of the last financial year, they have reported an EBITDA of nearly about Rs 8.17 crore. Every sequential quarter, they have more than doubled their EBITDA. Suddenly what happens is before the last quarter results are announced—before Q4 results of 2009 can be announced—the promoters of the company announced a buyback not with the intention to sink equity and enhance shareholder value but to buyback and delist the company.
Suddenly, you start saying, “What is happening?” They have used shareholder money for the last two-years to invest in trebling the capacity. Now that the trebled capacity is coming on-stream and shareholders are waiting that now we are going to get returns, promoters are saying, “We want to buy you out.”
People start wondering, “Why would anybody want to buy out shareholders suddenly?” It is probably because the company is going through an exponential increase and profit increase and as a result the promoters want to keep all the profits for themselves and leave out in the minority shareholder. This is the basic gist of my argument.
Q: How does the story pan out in terms of a shareholding structure? How much do the promoters hold? How many are the entities or persons are holding a significant amount in order to see this buyback go through or not?
A: From whatever information is available with me at the moment, the promoters have raised their stake from 48% to 56% in the first round of buyback that happened in the early part of this calendar year. It is very interesting because the second round has begun.
The second round ends tomorrow evening at 6 pm and the results of Q1 are going to be announced on 31. This is something I have against the management. If you ask me what are you annoyed about—not that people are doing a buyback—but the promoters of the company who are running the company know the results and the performance of the company on a QoQ basis. They have access to superior information, which minority shareholders do not.
So when this Q4 of the last financial year was happening and they knew very well that the increase in profits is not normal, it is supernormal, they try to buyout everybody else who do not have access to the same information. This is the fundamental premise of insider trading.
Secondly, they have done it again, the Q1 results of the current financial year are being announced on July 31. The second round of buyback is ending tomorrow evening at 6 pm. So obviously anybody who tenders his or her shares is doing so without the knowledge of how the company has performed in Q1. This is the blatant case of insider trading but it is important for all your viewers to know as to why the company wants to buyout other minority shareholders.
They are saying because legal cost has increased and this increase in legal costs or not commensurate with the company that has a paid up equity capital of only Rs 2.75 crore. I have two counters to that. 1) You don’t necessarily have to keep the company’s equity at 2.75 crore. The performance of the company warrants that you can do a bonus, get the equity to about 10-11 crore, get it listed on the NSE. 2) If you go through the balance sheet of this company for the last couple of years, you will realize that they haven’t split legal cost—legal cost figures in the schedules of the P&L account has legal cost.
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