@a_basumallick @ashwinidamani Questions that are only answered with time haha.

The anatomy of Private Equity (PE) funding in a public listed company.

A thread 👇 (1/n)

PG Electroplast Limited, a contract manufacturer of various kinds of electrical goods and appliances, recently announced an 80 crore fund-raise through preferential allotment of equity shares and compulsorily convertible debentures (CCD) to Baring PE and family funds. (2/n)

Such transactions are a great way to understand Private Equity deals in a public setting. Because of disclosure norms for listed companies, everything related to a fund infusion in a listed company is made available to the public. (3/n)

From a retail investor’s perspective, it is easy to focus only on WHO is investing. In this thread, I will try to look at such a transaction from the perspective of all stakeholders – the company, the PE investors, and the public shareholders. (4/n)

PG Electroplast sees an opportunity in the Productivity-Linked Incentives (PLI) by GoI. Under this scheme, companies making incremental investments into manufacturing facilities receive up to 6% of the incremental sales generated from such investment as an “incentive”. (5/n)

Insolvency resolutions suck for creditors, but this one takes the cake.

Listed company gave loan to related party, defaulted along with other dues. Related party creditor acquired the listed entity via insolvency.

Only losers are operational creditors w/ 88% haircut.

Company name is Covidh Technologies Ltd - really old bankrupt company. Not a significant event, just an observation.

Correction: Listed company *took* a loan from related party (in first tweet)

@sohamdas Depends on your style, of course, but absolutely correct.

Bull runs in small caps are usually fast and furious, and the cycle repeats itself every 3-4 years. Every time, retail is sold stories of business turnaround and stock charts look fantastic for meteoric wealth creation. For the class of 2020-21, here's a couple of past stars.

These small cap stocks with 30-40 crore market cap went up 23X and 11x in a span of 24 months between April 16 and April 18. The story looked great then, but subsequently once liquidity and interest disappeared, the prices went right back to where they came from.

When in the thick of the action, it can be difficult to keep a level mindset. To keep the narrative believable, these companies are able to massage their top-line and bottom-line for a short period of time to show an imminent turnaround. Note the trends in these financials.

The company usually exhausts its ability to massage the financial statements very soon and the business health plummets dramatically. One collapsed so dramatically it has been selling fixed assets. The other one is Uniply Industries - a simple search on Twitter will suffice.

Newer small cap investors may be subscribed to many Twitter handles, Telegram channels, groups and even premium advisory services. Don't take anybody's word for the narrative being sold to you. On-the-ground-research and scuttlebutt can be plain fiction.

Every annual report tells a story.

In small companies, you can read between the lines to get a feel of the management style and business economics.

I take Fredun Pharmaceuticals Ltd (FPL) to illustrate how to go about this (it's not pretty).

Let's go 👇 (1/n)

Please note that the main objective of this review is to get a preliminary understanding without doing a thesis.

It is oriented towards a "quick and dirty" review to decide if you want to dig deeper.

Review financials on a screener website before reading further. (2/n)

Now, you can already guess Fredun Pharmaceuticals is named after Fredun Medhora. His mother, Dr Daulat Medhora and his father, Nariman Medhora, are the original promoters of the company. Interestingly, Nariman Medhora has stepped down from active involvement in June 2021. (3/n)

Then we have Dr Daulat Medhora, who seems to have the qualifications and a decent background in the pharma industry. However, she is 76 years old and unlikely to be actively involved for much longer. (4/n)

That leaves Fredun Medhora, who does not have a technical or scientific background and his primary qualification is an MBA.

The biography provided in the AR describes the CV of an MBA student, nothing on the contribution or role in the company. (5/n)

@ramnath2015 DCF is a lot of bullshit.
5 yrs back u could have run a DCF in ITC and come to great conclusion but over the last 5 yrs the youth globally has moved away from cigarettes to weed

It's great fun to find a co. where the nos. don't look good on the face of it (one off issues)

But on a deep dive, switching between consol vs standalone, you find great nos. brewing at subsidiary level

As the one off issues get resolved, overall nos. will start looking amazing

Reverse DCF calculator is now available on Tijori

You can edit the earnings field, discount rate and terminal multiple to any value you like. Below is an example of Astral Pipes

Hope its useful to gauge optimism being baked into the current price!

https://t.co/Y6iV8LVLzT

A reminder of rule number one from @mjmauboussin

@unseenvalue Got it sir 🙏