Failed Shares like a Failed Rocket: Series -2

The second example I am using in FSFR series is very significant one. It gives a classical example of showing how a stock market investing can lead you to loose the entire investment capital!

The second pick in this series is GEODESIC LTD. In last decade, it rose more than 300 times from its lows of Rs 10 to12 (in 2000 to 2002) to its peak of more than Rs 4200 (in 2007 -08 ) effective price while considering the Bonus issues and FV split. But on today’s market, its already suspended from the bourses and facing a legal liquidation procedure from the creditors. [The most number of companies failed – for oblivious reasons - in last decade, are from IT related sector!!]

And in all probability the share holders will get nothing after the liquidation, from its bogus books. God only knows if any creditors also will get any penny from this company.

13 Year Price Chart

Effective Price Chart Vs FD Return

So what went wrong with this tech company? If you analyze the companies from the beginning of 2000, the company was in track in earlier years and even paid decent dividends. But in most probable cases, the company started reporting cooked up figures to increase the share price and market cap [similar lines happened in Satyam case, and its almost proven. But in this case its only a wild guess].

Now let us check the dividend payment track record

Dividend Payment Record
	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Actual on a single share	5	10	10+ 0.2	0.4	0.4	1.6	1.6	1.75	2.75	2	Nil	Nil
Effective for Initial 1 share	5	10	10+0.2*10 =12	* 10 = 4	* 10 = 4	* 15 = 24	* 15 = 24	* 15 = 26.2	* 15 = 41.2	* 15 = 30	Nil	Nil

Nothing wrong can be found analyzing these data along with sales and profit. And common investors may ask how we can differentiate gold from all the yellow glittering? But if we spend little more time with effort, we can find few red signals along with promoters quality degradation issues.

  

The major red signals were visible from Promoters share holding and pledging. Below tables shows these details.

Promoters Share Holding Record
	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Number of Shares (Lakhs)	23.6	20.6	16.6	152	147	147	218	218	209	209	226	88	88
Total Shares (Lakhs)	42.7	42.7	50.67	512	585	588	921	921	920	899	899	903	901
Percentage	55.5	48.2	32.8	29.7	25.2	24.9	23.6	23.6	22.7	23.2	25.1	9.7	9.7

Promoters Pledge Details

Number of Shares Pledged
	2009	2010	2011	2012	2013	2014
Number of Promoters Pledged share (Lakhs)	7.6	0	0	126	35	35
Total Promoters shares (Lakhs)	218			226	88	88
Percentage of Pledge	3.5	0	0	55.6	39.7	39.7

A steadily decreasing promoters holding along with increase in pledge is visible in the above tables. The company increased the debt level to above 600 Crores, mainly for bogus purchases at fancy valuations. If a Tech company goes for bigger acquisitions with steep increase in debt, along with a muted performance, it’s always  giving a red signal.

In one way we may conclude that, the initial investor might have earned much money in the form of dividend than an FD holder, but what about an investor entered in middle or extreme bull phase of this share?

 So this example gives us a clear message that a long term equity investor should be vigilant! And in case if we find something fishy, we have to sell it even in loss (majority of common retail investors hesitate to do this). It will at-least save the remaining percentage of our capital, rather than loosing it completely.