Porinju Veliyath never tires of talking about Samtex Fashions, a micro-cap with a market capitalisation of about Rs. 100 crore. In an interview to ET, Porinju oozed confidence about the prospects of companies like Samtex. “I am seeing many potential multibaggers and when I look for values, I am still more convinced that the value is lying in the midcap and the small cap segment” he said.
Porinju later tweeted about the stock:
Samtex Fashions, I suggested on @ETNowTv last Friday is on 5th day circuit. Look cons. nos.
There are 100s of such potential multi-baggers!
— Porinju Veliyath (@porinju) January 9, 2015
(Samtex Fashions, I suggested on @ETNowTv last Friday is on 5th day circuit. Look cons. nos. There are 100s of such potential multi-baggers!)
Porinju was in fact a major shareholder in Samtex Fashions earlier. As of 30th June 2011, he held 117,000 shares. His name, however, does not appear in the present list of major shareholders.
Samtex has been on fire in the recent past. On a YOY basis, it has given a stupendous return of 225%. The two year return is an incredible 607%.
The million dollar question is whether after such a scorching performance, Samtex has the potential to offer more gains?
Porinju obviously believes that it has that potential. Today, he scooped up a chunk of 77,473 at Rs. 70 each, making an investment of Rs. 54 lakhs.
Porinju’s logic appears to be that Samtex Fashions is walking on the same path as its illustrious peers, Arvind, Page Industries, Kitex Garments, Indian Terrain, Ashapura Intimates etc and that there are mega gains to be made from such stocks.
Only time will tell whether Porinju is right in his theory or not.
My analysis with Samtex is full of anomalies—but still I am not against buying it. Posting this info just to help in making informed decisions:
Samtex Fashion’s FY2014 total turnover is Rs.1945 crores. Of this, its 100% subsidiary SSA International accounted for Rs.1790 crores—that is 92% of total turnover. SSA International is not a fashion company. It’s more (if not entirely) into rice, soya meal and oil trading / exports. (See the web site of SSA International: http://www.ansig.net/index.php)
It’s ok, nothing wrong to be an agri exporter. But why are they hiding this fact in annual report? Why the annual report never mentioned about their agri products trading business and all those processing plants?
This is what the FY2014 annual report repeatedly says: “The Company is engaged in the business of manufacturing and selling of Ready Made Garments. The Production process is being carried in the Company’s factory located at 134-135, NSEZ, Noida U.P. Entire production of the company is exported to the overseas markets. The company has major one segment activity i.e. readymade garments. Its geographical distribution is in India and in USA”.
They claim they are only into readymade garments. Why they projecting themselves as a pure fashion company while it is not the case?
While they say their geographical distribution is only in India and in USA, SSA International mainly exports to Dubai and west Asia. Why hiding this?
Why no disclosure of segment revenue for consolidated results? Since they hiding information in first place, how reliable are their disclosed numbers?
High debt of Rs.690 crores & D/E ratio – 4.2, Current Ratio – 0.59, Net Profit Margin – 1.3%. With the kind of low margin, is it not like scatting on thin ice?
Very poor disclosure standards—they disclose very little. It’s really very hard to find information in public domain about this company.
Later I discussed this stock with Porinju Sir. His answers, net-net is: “I hate the management. Too much debt. Never pay dividends. But that’s also why I bought it. If the management of these companies did all right things, the stocks would have been too expensive for me to buy”.
But the answer is not convincing. The reason to buy stocks is based on factors like certain company has good business model , management is visionary and doing are the right things . But the market has not recognized the company and unloved and uncared . In future if the company does well , such performance will be recognized and the one who bought considering all factors will laugh all the way to bank when the market recognizes and accords higher PE multiples. But not the reason that if company does all right things , the stock becomes expensive that is why I am buying stock now despite weak fundamentals and shortsighted management. Many years ago Granules was not expensive in 2005 . Did all the right things now has become expensive So was Aarti Drugs and Aarti Inds . and many more
SingarajuJi,
thanks a lot for you detailed and indepth analysis . This shows clearly how peoples had hidden agendas when they recomond stocks .
Thanks
BSE / NSE does not have any control on these type of companies whose >90 business is in different segment and does not disclose in annual reports ???
Thanks for sharing
Dear Singaraju Sir, you made a critical analysis of Samtex. Do you have any comments against Kitex? Frankly I smell a stink there too. 100 crore profits in FY 15 and 6 crore dividend? There are many more. I would welcome your views on Kitex. Apologies to fans of Kitex, but I am not convinced about that stock.
Singaraju Sir,
Thanks very much for your insights. Have you spotted any deep value picks in the market. Can u mention few ideas you are tracking right now ..Asking you as you were the first one to spot Shreyas shipping before it started its breathtaking journey! Best regards.
Why no cash generation? Loans are higher than reserves. How long will it sustain?
Its not the next page or Kitex but for sure, it is the next sudar industries.
Join me on Facebook by searching GURU VACHAAL.
I have just about stopped coming to this site because of the deteriorating quality of articles here. When fixers like this Porinju are highlighted in most articles, the ethics of owners are subject to questions.
Exactly. People here are blaming Basant Maheshwari but none of them is asking how Dolly Khanna escaped the carnage in both Hawkins and Cera just in time? How come this Porinju buys Jubilant and a company losing cash becomes multibagger? These guys are all trading on inside information. Time SEBI does something about them.
Haha to my comment is awaiting moderation.
Very nice analysis of Samtex. If we are true Buffet-like investors, we need to look for real value. Never forget what Buffet had said about buying stocks where the integrity of the management is impeccable.
We might score a few sixes with such stocks but can they lead us to a century? To score a century you need Dravid’s technique. 🙂
Samtex Fashion is not a shareholder friendly company. It is a banker’s delight!! Look at last four years (FY12-FY15) numbers on the interest expense-consistently higher than Gross Profit.
The company doesn’t have any investments or cash to generate other income. Other income is NIL during this period.
It hasn’t paid dividends during this period because it doesn’t generate real cash. It doesn’t have cash to pay dividend.
Its debt equity is dangerous at 4.2:1 as of FY14. How can it even dream of paying dividend?
Absence of cash, investments will put the company at severe risk when operational profits start falling.
Interestingly when the stock price last June (2014) was Rs.20, its Market cap was just 30 cr; trading at a P/E of one!
Its operating profit was Rs.117 cr.
Its book value of Rs.111 (FY14).
The Price to book value was 0.18.
Its net current assets were Rs.727 cr vs. market cap of just 30 cr….Unbeleivable!
Why would a company trade so low.
The numbers are just not to be believed…period.
This company is cash starved. The music is about to stop….its a matter of time.
If someone buys 1 stock daily means about 250 stocks p.a. from about 1500 active traded stocks and if few stocks go up does that mean he or she is great stock picker? I will not even touch junk stocks like Samtex.
True…Biggies like Porinju never care of poor retailers and just play with their sentiments by making fancy statements to trap the innocent ppl…By teh time they publish their reports/research materials in public they start booking profits or sitting on hefty profits already…only skills now days they show us is “How to make innocent ppl FOOL legally”
You are absolutely correct
Just to take this samtex case and discuss ,there are much better fundamentally strong companies who have the ability to be next multi baggers such as morarjee textiles, himatsinga seise, vardhaman textiles . good yield , good managements, established produt lines and mfg facilities. But I know who can stop investors from being greedy chasing satexes of the world and losing money to smarter (read wily) investors.
The end of Samtex story