Usher Agro Ltd

One company baffles my understanding Can any one explain :

Usher Agro Ltd
CMP 38.4
EPS 14.2
PE 3.5 ...
A consistently growing company...

 

corporate governance, high leverage, going down

 

Oh IC Data says MCAp 145Cr and Reserves 395Cr ... What is means

 

you'd have to check the balance sheet for that - if it is just general reserve or securities premium
general reserve will have accumulated profits and can be used for issuing bonus, dividends
securities premium - securities issued at a premium, restrictions on the use of funds

MCap is just outstanding shares into last traded price

edit : there's some ambiguity about the use of Securities Premium Reserve and my post could be wrong

https://www.accountingexplanation.com/difference_between_capital_reserve_and_general_reserve.htm

 

BB ji In lay mans terms is it right to assume that If some one buys all the shares of the company he will have the reserves too ...

 

yeah it is like the movie Wall Street, but if it were the case, you must know that there's a lot of vulture firms out there just doing that

technically with the reserves figure given, company could just go for a buyback

i refrained from posting this in the first post - unlisted company Bush Foods Overseas Pvt. Ltd. - a case of fraud, had good products, was going national, signed Madhuri Dixit for adverts, got investments from Qatar
next you hear - there was no Basmati rice but just husks in the sacks, all inventory was fake

look up KS Oils, REI Agro

don't tell me you are going to raid Usher Agro

 

BB good to know the way these people operate ...

 

UC today

 

Good. I missed the bus...

 

would you say that if it went lower?

that's a lesson, if you're convinced or have a feeling, just buy

happens a lot with me too

 

BB I am a human being ...

 

dear @yembee i think usher agro is not a branded player. so the low pe .since debt is also increasing i think it may not be rerated. be careful if u want to buy.

 

My knowledge on Balance sheet is zero. Would like to clarify a doubt. This question may be downright stupid, but that is what I am right now, at least when it comes to Balance sheet.

Suppose a company has not availed any Bank loan and used only share capital for meeting the cost of land, building, plant and machinery and other capital expenses. One year after the project was commissioned, the company deducts, let us say 2 crores towards depreciation from Profit.
If the company has availed term loan from the Banks, naturally this depreciation will be used for the repayment of principal amount(not the interest). As this company has not taken Bank loans, where this depreciation amount of 2 crores will be parked? under Capital reserves?

 

Dear @w4wealth Yes Debt is a big worry... After analysing what has happened to Rei Agro...

 

Thanks for asking that question, Karthik. I learnt something new. Depreciation is a non cash expense. It doesn't affect the cash flow. So in that query, we needn't even think any further because we'll both be stupid to think of that.

And the treatment of depreciation is governed by Accounting Standard 6 & Accounting Standard 26 for amortization (depreciation of intangibles like goodwill, R&D). The method to be used, rates are prescribed.

For the loan repayment, the way it works is we always do the interest servicing first and gradually it moves towards principal repayment. So if you take a look at any amortization schedule, even a home loan, you'll see that the interest component is the major portion that is serviced by our EMIs. If the lender does have an option for prepayment, it can be done with some penalty because the lender is losing on planned interest income. After the prepayment, the amortization schedule is redrawn for the new outstanding.

Accumulated Depreciation is a Balance Sheet item. What happens is, Gross Block - Accumulated Depreciation = Net Block

I'm sorry if my reply is further confusing you. But please let me know if it helps or you need any clarification.

You're not stupidier than me

 

@BombayBoy ,

Thanks a lot for your clarification. Below mentioned query of mine will ensure that you can't snatch the title, "stuphidiest" from me.

I can't truly understand the essence of Gross block. So, let me put my question in another perspective.

Among the many possible definitions of depreciation, though everything may mean one and same, the one that I can understand or think like understanding is this - cost of the asset is divided over its entire life(thus avoiding the need to bring the total cost of plant and machinery and building under expenses in the very first year itself.)

I know for sure, that in case of Partnership firms, if there is a Bank loan, interest cost comes under the expenses and the money deducted from Profit as Depreciation is used/ for the purpose of repayment of the Principal. As one starts the repayment schedule, bulk of the repayment goes towards the interest. Eventually interest cost reduces, as the principal starts diminishing. The thing to note here is that the interest cost falls under expenses and money deducted as Depreciation from the Profit is used towards repayment of only the Principal. So, in a way cash actually flows.

So, in case of a Partnership firm, if there is no Bank loan, the partners can very well pocket the depreciation money. I am not sure abt this, as I have not seen a debt free Partnership firm.

Now let us consider, a listed Company. Here also, if there is a Bank loan, money deducted as Depreciation from Net Profit may be used towards the repayment of the Principal part of it(not the interest part). Please correct me if I am wrong here.

If the same listed company has not availed any Bank loan, what will happen to the money, deducted as Depreciation. Actually money is deducted from Profit and this deducted money must be added somewhere, I think.

I googled. Some say that it will be entered under contra asset, which looks reasonable, but I still have to ponder about it.

Depreciation has always confused me. When one of the companies, where I worked earlier was liquidated, the machines were under invoiced and sold with almost zero value(may be to match with book value) in the Invoice. But the actual selling price was 50% of the purchased cost and this was paid to the MD as cash by the buyers of the Machinery. The big boss always makes money, whether the company flourishes or dies.

Here, what could have happened to the accumulated depreciation, that was deducted from the profit, all these years? Strictly speaking, it should have been a part of the assets side and divided among all the shareholders, isn't it? Again I am not sure.

Not sure, whether I have asked my question correctly. Thanking you for accepting the challenge to teach the unteachable.

 

Oh my god.... So many Grey Areas... I am comfortable with Earning Growth Forward PE etc... Ignorance is bliss most of the time

 

@BombayBoy ,

Your detailed reply has clarified many doubts. "The essence of depreciation is to provide for the replacement of an asset" - I like this definition. It means the company must have earned and saved the acquired cost of the assets during their lifetime, besides profit .

From the stock picking point of view, all we have to do is to see, whether depreciation has been tampered with, to inflate profits. No need to bother abt the other dynamics of depreciation in this context. Am I right?

Thanks a lot for your patience and time.