PCJeweller (Doomed?) — Upcoming Indian Fraud
PCJ is one of the most hated public companies because it destroyed investors' wealth over the past couple of years. Corporate governance is a major issue. You won’t see any new interview of the promotor — Balram Garg or find him on social media.
Stock’s share price fall by ~98% from the peak. There’re numerous reasons for this fall. Let’s discuss them straight away.
See the chart? At its highest price, when the company was trading at a PE of around 50, Vakrangee (another fraud company) buys heavily. How much? 2M shares at 561. The ‘stock’ immediately fell 60% following the news.
Later on, the news went on that Balram Garg — MD of PCJ was arrested. He appeared on business news channels that he wasn’t arrested neither he was summoned by ED or SEBI. How sad that this didn’t happen before.
Later on, Company announced a buyback, the share price started moving up and then it canceled the buyback offer and the stock saw a free fall until Carlina buys a stake at around Rs. 80.
When Carlina (Mauritius FII) bought a stake in it, the stock was already trading in the sideways market so retail investors had assumed that bottom has been made a big FII invested in it. The stock price surged to Rs. 140 in no time. Carlina buys even more.
Later on, bears got active once again and it started crashing down. Earlier it was uncertain as to why the stock was going down but then…
Insider Trading
Son and Daughter of PC Gupta (former chairman who died in early 2019) started selling their shares in June’19. Sold 9% of their holdings in a quarter and didn’t stop during the insider trading prohibition period. Sebi fined them heavily though.
Later on, Carlina and Idria exited at the same time and at a similar price with heavy losses.
*I would rather call it a “stock” and not “company” because it’d be unethical to it a company!
Money Laundering
And then comes the shocker, Company gave Rs. 500cr discounts to exports receivables. What? A discount of around 25%? How is it even possible when your OPM is barely 10% at max.
Something’s fishy here. The company needs to undergo SEBI’s radar for money laundering to foreign parties (themselves).
Someone having black money might have converted to white with the help of Carlina. How can someone do that now? Watch this video:
Even after giving ~500Cr discount to debtors, the TR didn’t fall by 500, It rather increased by 150Cr. WTF!
See the trend of Receivables, Always going up. This is not a healthy company. How could the management allow this to happen?
Only one way: If they are taking loans in India and laundering money to themselves in foreign lands. It had happened before. Nirav Modi, Jatin Mehta to name a few.
Banks should beware of these companies and should take back their principle asap before the directors flee to London.
Leverage
The company’s operating leverage is low and financial leverage is high. That’s good only if the future is fruitful and bright — Means surge in demand. In the case of PCJ, nothing such is there. Sales growth is declining QoQ.
Current Ratio
PCJ’s liquid ratio has always been bad ever since. That means to repay its creditors it didn’t have enough current assets that it had to sell Non-current assets or take another loan to repay old creditors, every single year. 2013 looks exceptional.
Valuations
Suppose someone wants to takeover PCJ what will it pay and what will he get?
In the most recent balance sheet (Sep-19), the company has to pay: ~3700Cr to its creditors. While the market cap looks attractive at ~500Cr with Annual Sales of 8000Cr+.
Suppose the new buyer won’t be able to recover any of the receivables or loans. He’d rather take cash and inventory and burn the company to the ground. Cash and Inventory stand at ~5500Cr. That’s a pretty good number. Inventory is valued at Rs. 5300Cr alone.
Now the company might look lucrative to you. You might want to buy all the shares at current valuation and take over the company and sell its assets and give dividends to yourself. Well, it’s not like that!
Problems in Valuation
Can we trust the management with the figure of Inventory? Who’s going to check all the inventory? What if the inventory is not even 20% of reported. Auditors might have reported false numbers. It might be possible. It had happened, it can happen.
Even if the reported inventory is 100% right, Buffet has to say something about this approach:
The asset style of investing is the “cigar butt approach.” Unless you are a liquidator, you may end up waiting a long time for that “puff” of profit.
And by the time that event comes after a long time, the management would have exported all their inventories to their foreign entities and show these sales as receivables. Retail investors will once again be stuck.
Conclusion
The company is not making it public who are their debtors and why are they not paying it back to the company. One day you might wake up with some news that another scam/fraud has happened.
Management of the company should either come out and clear the doubts of investors if they are honest and SEBI should put this company under its radar as another scam is undergoing.
Retail: Stay away from this crap.
