21st Sept. 09
Certain Managements use any excuse – except their own sheer incompetence to manage, as reason good enough to say why the finances of the company they manage – rather mismanage – moved in to the shit house and has been going deeper into that pitiable state, year or after. The management of Gangotri Textiles is one such sordid example.
Four years ago, Gangotri Textiles extended a loan of Rs.15.00 crores, nearly double the size then of its own then equity capital of Rs.8.00 crores, to the brother of the Managing Director, to set up another similar but so far unlisted company, Jagannath Textiles. in a family settlement which its share holders came to know only after it was put through! The loan was at simple interest of 6%, whereas loans availed Gangotri was at thrice that rate, and on compounded interest! The Directors nominated by the banks and financial institutions have been in deep slumber all these years! The shocked share holders have been raising this issue every year. and been demanding that this unauthorized loan given by Gangotri Textiles, be got back immediately.
At the last AGM, the Managing Director revealed that Rs.8.00 crores was coming into the company’s coffers, not as part return of the unauthorized loan, but as an interest free loan arranged by promoters! The demand of the shareholders that money be accounted as part return of the unauthorised loan, has gone unheeded! If the loss in terms of the interest differential is to compensated, and we ignore the compounding factor, the balance amount to be recovered after adjusting this Rs.8.00 crores, works out to 12.48 crores!
What have been the consequences suffered by Gangotri Textiles and its shareholders?
The interest burden of the company, expressed as a percentage of its total income, has sky rocketed from 3.93% in qtr. ending March 07, to 44.87% in the qtr. ending March 09! It has come down to 31.19% in the June 09 qtr., thanks to the mobilization of Rs.8.00 to retire some part of the high cost debt.
The choking of funds due to unabsorbed and therefore compounded interest, has crippled Gangotri’s total income itself from Rs.41.42 crores in March 07 qtr., to half, Rs.22.35 crores, in March 09 qtr. The co.’s income has improved to Rs.27.99 crores in the June 09 qtr., thanks to slight release of the choke of working funds.
Its BSE prices (Face Value Rs.5.00) which was Rs.27.60/-, on 28th Feb.07, whenthe SENSEX closed at 12,938.09, but collapsed to Rs.3,45 on 28th Nov. 08 when SENSEX only came down by a third to 9,092.72, and has improved to Rs.8.06 on 31st Aug. 09, not because the SENSEX soared by 72.30%, to 15666.64, but because of rumours that some progress has taken place in its negotiation with the financial institutions, on restructuring its financial liabilities, including its interest arrears, as a part of rehabilitating the company.
I am amazed that some boarders are yet optimistic and are indicating that bonanza awaits investors. Let me quote a couple of them.
Mr. “jose123” writing in these columns on 17-Jan-08 , says “But there is a limit for a company to fall.” He also says Gangotri Textile’s market prices :is in its life-time low levels. So it can recover, and it will” and advises me “you don`t try to panic people.” He puts a share price value to his optimism when he says “In my view, it can cross 30 levels easily.”
18 months later, “ jimima” writes on 17-Sep-09 “Not baD AT CMP.” And advises investors, “Buy for long term” and puts another price for his optimism, when he says “Target for 2Yrs. 100Rs.”!
Borders will perhaps remember that I have been researching and commenting on some stocks. The list includes Teledata, Pentium, Anus Labs etc., also. The spirit of sharing these observations is investor education, not self trumpeting, as is proved by the fact that seldom have my observations been proved wrong.
In the case of Gangotri Textiles, I would be the happiest to see substantial upward movement of stock prices, because I will also gain, being an investor myself. Therefore I will be happy to be proved wrong!
12.11 PM Sep 21st 2009
| NIFTY 
