Agree and that too at nominal price. Why not issue ESOPS which are linked
to present market price. While Ajit Isaac is the driving force behind Quess
can’t understand what additional gain will happen if he controls more than
25%.

The company conducted concall on its Q2 results, below are the points that I have noted down.

a) Results have not been upto the mark. This is due to bad monsoons and degrowth in the tractor market
b) 6420 Tillers sold during the quarter value – 82.8 Crores, average realization at 129000; 1752 tractors sold value – 45.66 Cr, average realization 260000.
c) Operating margins not upto the mark, reason being increase in other expenses, they form 13% of sales as compared to 10% in Q2FY15
d) Company has appointed Mr Subbiah as CEO, having 34 years of experience. Worked in companies like bosch, tyco electronics and pricol.
e) Orissa is the biggest tiller market in India. However it has been a disappointment. Reasons are change in policy- state pays subsidy of 75000 which is staggered over a period. State has also adopted a lottery system, earlier for receiving subsidy they followed a first cum first serve system. As demand has increased they now use the lottery system for subsidized tillers
f) Company expects to sell 28000 tillers in FY16. States that will drive this number are karnataka, AP & TN. Company has sold 13176 tillers in H1 FY16.
g) Company expects to sell 8500 tractors in FY16. The company has sold 4000 tractors in H1 FY16.
h) Company is bringing in outside resources to the company and professionalizing it, the promoter family will be involved in the company, however they want to bring outside talent to run the day to day operations. It has also appointed a new marketing head
i) Company is going to launch two new products in the tractor segment. 25 & 30 HP tractor. One of the tractors is going to be launched in Dec next year
j) The company is in a position to produce 12000 tractors and 35000 tillers without a hassle
k) Company is going to maintain a dividend payout ratio of 20%, though they have cash on the books to the tune of 140 Cr. They want to have money for the rainy day
l) 25-50 Crore capex required in the medium term, figure will depend on the development of the new tractor
m) For the rest of the year the following states are going to contribute to tiller sales Karnataka – 6000 units, Orissa – 5000 units, North East – 3000 units and Maharashtra and Gujarat – 3000 units. In the tractor segment Maharashtra and Gujarat are going to contribute 75-80% of the sales
n) Karnataka and TN give subsidy for small tractors
o) Company spoke about direct benefit transfer scheme – the company did mention that this is good in the long term however demand will go down in the short term. Farmer has to arrange the full money while purchasing the product and company will get the money immediately, current the company receives the subsidy over a 6 month period
p) Africa is a good market for tillers, however it is flooded by chinese tillers and it is very difficult to compete with them. However the company is looking at the tractor market in Africa
q) Current market share in tiller market is > 50%, company has grown this share from 45% this inspite there being 45 brands of imported tillers in the market. In the 20-30 HP segment the company has a market share of 30% up from 27%
r) Company intends to sell about 3000 rice transplanters in the next 2-3 years
s) The company has 200 dealers, 80% of them handle both power tillers and tractors. Dealer margins >10%
t) The CEO is going to lay out a 5 year 2020 vision for the company and present it the board in the coming days, points that he mentioned were
1) Strengthen product engineering – collaborating with partners for better technology, shortening lead time so that the product can reach the customers on time
2) Company to have a organizational structure to support this plan
3) Work on supply chain – company is looking to prioritize on suppliers
u) Company is looking to get 50-50% revenue from tractor and tillers in the next two years. After that tractors will contribute the majority of the sales.

If other members have gone through the concall and want to add on points that I may have missed please do so.

Regards,
Chetan Chhabria

Has anyone checked out this latest notice from them?
http://www.thomascook.in/tcportal/downloads/Letter%20from%20Managing%20Director.pdf

(Pasting the relevant section below, apologies about the incorrect formatting.)

The more i read it, the more it doesn’t seem that right. Would Mr.Isaac know of these nuances while selling stake to Thomas Cook? Also, if this is done once, what’s to say it won’t happen again?
Am i missing something?

“Proposals to retain buy in of Mr. Ajit Isaac
Your Company’s Management believes that in the interest of continued longer term growth and profitability of Quess, it is imperative
that (i) Mr. Ajit Isaac retains the role of being the CEO of Quess and a joint venture partner of the company, as also (ii) remains
a significant shareholder of the company and, therefore, continue to have a strong commitment to enhancing shareholder value.
Responding to the concerns of Mr. Ajit Isaac and to secure his full commitment to the Quess performance, the Board of Quess has
decided to make a Rights Issue of an aggregate of 2,560,000 shares of Rs. 10/- each at a nominal price of Rs. 10/- constituting 8.8%
of the fully diluted equity capital of Quess. Of these, 1,957,302 rights shares are offered for subscription by Thomas Cook, on a pro
3
rata basis, based on its existing holding in Quess. It has been further proposed that your Company would not subscribe to its rights
entitlement of 1,957,302 shares of Rs. 10/- each and renounce them in favour of Mr. Ajit Isaac and/or his nominees. Consequently,
Mr. Ajit Isaac and/or his nominees would thus be able to subscribe to bulk of the Rights Issue entitlement. This would increase his
shareholding in Quess to a level of 28.78% of the fully-diluted equity capital and would dilute the shareholding of Thomas Cook to
66.71% of the fully diluted equity capital (as against 68.04% of the fully diluted equity capital at present).
Rationale for the Proposal
The move to not subscribe to the rights shares and to renounce them in favour of Mr. Ajit Isaac and/or his nominees is primarily
designed to ensure Mr. Ajit Isaac continuing to retain material equity interest in the Company and a commitment on his part to
continue to serve as the CEO of the Company for foreseeable future. The management of your Company believes that these steps,
while in the short term may appear to be dilutive of the interest of Thomas Cook (and consequently its shareholders) in Quess, in
the longer term, Mr. Ajit Isaac’s continued involvement and leadership would provide huge stability to the organization and help
it to maintain its growth momentum and lead to significant value creation for all shareholders, including your Company as the
largest shareholder of Quess.”

I mulled…..re-read the entire VPr thread….went through every available news item…did all the math….consulted…..mulled again….finally chided myself on why I didn’t act earlier…While I neither require this capital nor I have a comparable alternative stock, its a fact that I might be acting too late and there might be hardly anymore downside left…all said and done, I pulled the trigger y’day…significantly reduced…my reasoning – with lack of growth in the same % as in the past (25-30%), any further PE re-rating may not be easy….Not that Mr.Market will act the opposite of my reasoning. Has happened countless times before but at 17-18% growth as in this quarter, a PE like the current one may not be sustainable was my only reasoning. For all you know, I might get egg on my face, with the management suddenly going against grain and pulling off some stupendous numbers in Q3. I still like the business and its scalable nature but I move on. May revisit, if it falls to 4 digits

Thanks for the article. Extremely helpful. Apart from the data integrity issues, the USFDA seems to be very particular about training as well as employee hygiene.