Tuesday, March 6, 2012

Sanraa Media & Ram Kaashyap Investments - What the Future Holds

A Venkatramani
By Staff Reporter:

Sanraa Media Ltd (BSE: 531312) traded on a new circuit filter on Tuesday, as notified by BSE on Monday evening.

The filter revision is upwards, from the current 5% to the new 10%. In India, circuit filters or circuit limits as they are often called, sets the limits for daily trading in those stocks where no derivative instruments like futures and options are available.

Recently, Bombay Stock Exchange, the only exchange where it is listed, had also brought back Sanraa Media into B Group, from the T or Trade-to-Trade Group where it was relegated for many months. In T Group, each trade is settled on a delivery basis, and no day trade or netting of positions is available.

While shifting to T Group is often done as a surveillance measure to cool off high volatility in scrips, it is also done as a regulatory measure against defaults like non-filing of quarterly results, share holding pattern (SHP) etc. In Sanraa Media’s case it was the latter.

The recent shifting back to B Group followed Sanraa Media publishing its SHP after defaulting on the same for six months which had raised fears of imminent suspension from trading.

There are changes worth noting in this latest SHP, compared with the SHP for Q4 of last fiscal, which was the latest Share Holding Pattern available for the stock.

The equity base of Sanraa Media remains at 119.61 crore shares of Face Value Rs. 1, as was the case 9 months back. It is a rather bloated equity base for a company that clocked only Rs. 4.44 crore in revenue and Rs. 5.83 lakhs in net profit for Q2 of this fiscal, which had made the Q2 EPS not even 1 paise.

Promoters have not upped their stake from the exceptionally low 2.58%, even after the scrip had become the cheapest by absolute price in the Indian market, and remaining so during these last 9 months.

But even at these low prices, there were ready institutional sellers. The largest seller was Sanraa Media’s largest non-promoter shareholder, Bank of New York, which offloaded a minimum of 2.98 crore shares amounting to a 2.49% stake in the company. BNY’s sell could be even as high as 4.18 crore shares amounting to 3.49% or its entire stake in Sanraa, as only stakes above 1% need to be reported in SHP.

There is a high probability that much of these sell-offs were through off-market transactions, as Sanraa Media had witnessed heavy off-market transactions during this period. However, as often is the case, these shares ended up in market later, thereby increasing supply and disabling the scrip from any kind of up-moves.

Bank of New York Mellon is a leading overseas custodian for Global Depositary Receipts (GDR) of Indian companies, and it was the custodian for Sanraa Media’s GDR too. As such, it is highly likely that BNY was holding the converted GDRs on some other investors’ behalf, and had sold it off also during these nine months, on their decision.

Another major seller of Sanraa Media during this period has been Lotus Global Investments Ltd, the second-largest non-promoter shareholder, which shed 55 lakh shares amounting to 0.46% stake, also at these low prices. Lotus Global Investments Ltd is an FII sub-account registered under MM Warburg Bank (Schweiz) AG, and has several investments in Indian listed space, which include bets that include both good and bad ones.

However, for Lotus Global Investments, it is only a partial sell in Sanraa, as 3.92 crore shares or 3.28% is still remaining with it, making it also Sanraa Media’s largest non-promoter shareholder now.

Yet another seller during the first nine-months of this fiscal has been India based brokerage house, Angel Broking Ltd, whose sell may be as high as 1.19 crore shares or 1%. The exact figures are not ascertainable as stakes below 1% need not be reported in SHP.

Anyway, all these institutional offloading has ended up in non-institutional hands, with their stake increasing by 4.18 crore shares or 3.49%, and the total non-promoter and non-institutional shareholding is now at an all-time high of 97.42%.

Interestingly, even among these shareholders, only retail investors have shown real eagerness, as even Body Corporates have sold off 1.45 crore shares amounting to 1.21%.

Among retail or individual investors, growth was both in number of investors as well as total stake. Sanraa Media now has 17,299 small shareholders holding up to 1 lakh shares, together making up a 6.21% stake; and 12,967 large individual investors holding more than 1 lakh shares, together holding more than 73.65% stake.

Though this second category has given rise to rumors of poop-and-scoop strategies as well as benami holdings by unidentified large investors, it need not be the case, as 1 lakh shares of Sanraa Media costs only Rs. 10,000 to acquire. The situation is more likely to have arisen due to retail investors repeatedly averaging their holdings with more and more buys at lower and lower prices, due to the extended free fall in the scrip.

There is also a serious discrepancy in the number of large holders and/or their total stake. Because, 12,967 shareholders holding more than 1 lakh shares should at least add up to a nominal capital of Rs. 129.67 crore, whereas the total capital attributed to them in the SHP is only Rs. 88.10 crore. If we take this figure - Rs. 88.10 crore - as right, the average holding of 12,967 shareholders falls way below 1 lakh shares, to around 68,000 shares each.

Also, the total attributed to them can’t be Rs. 129.67 crore anyway, as it is even above the total equity capital.

Earlier also, Sanraa Media’s SHPs have shown these kind of inconsistencies. 

The only identifiable large investor that has upped its stake during these nine months is another India based brokerage house, Karvy Stock Broking Ltd, which has bought 79.86 lakh shares or 0.66% stake, thus taking its total stake to 2%, and has thus become Sanraa Media’s second largest non-promoter shareholder, and one of the only two shareholders holding upwards of 1%. 

Sanraa Media has also announced its Q3 standalone results recently. On an year-on-year basis, total revenue is down by almost 61%, while the bottomline this time is a net loss of Rs. 0.52 crore.

Sanraa Media produced an EBITDA of Rs. 1.08 crore, thanks to a sharp drop in expenditure due to zero ‘Product Development Expenses‘ this quarter, a 38% drop in ‘Employee Expenses‘, and negligible ‘Other Expenditure‘, thereby more than offsetting the 20% spike in ’General Administrative Expenses’.

Still, bottomline nosedived to a net loss due to high interest and deprecation. 

With these Q3 numbers, the fiscal year-to-date or nine monthly revenues has dipped by 51%, while this fiscal’s net profit has dipped by over 94%.

The Q3 results also reveal that promoters of Sanraa Media has pledged 42.30% of their 2.58% stake.    

Sanraa Media is promoted by A Venkatramani, a former Executive Director of Shriram Group. Other firms promoted by Venkatramani include GV Films and Kaashyap Technologies, both of which have a similar suspicious price-action like in Sanraa Media, that has destroyed investor wealth by over 95% from January 2008 highs.

Another Venkatramani Group firm, Ram Kaashyap Investments Ltd (BSE: 511652) had in January concluded a GDR Issue for Rs. 375 crore for an overseas acquisition, with an additional Rs. 375 crore being raised now as FCCBs. The company’s name is also being changed to Gemmia Oiltech (India) Ltd, to reflect the acquisition target which goes by the name of Gemmia.

This capital raise and deal are very peculiar as Ram Kaashyap’s equity base was just Rs. 8.79 crore and net worth was just Rs. 15.14 crore before this deal (as of FY‘10). Annual consolidated revenue, as of FY’11, was just Rs. 11 crore while consolidated net profit was Rs. 0.94 crore.

With these kind of tiny financials, it is a wonder which investors had pumped in Rs. 375 crore into Ram Kaashyap’s GDR.  

Interestingly, India’s securities regulator, SEBI, had on September 21st barred seven listed companies from further equity expansions, for undertaking similar GDR issues earlier that were in no proportion to their equity base or financials, and for later selling it off slowly and steadily to Indian retail investors, thereby causing a huge crash in prices.

Post the SEBI order, the nagging doubt in the market is whether these GDRs had indeed attracted real overseas money, or were just acting as though they attracted investments, for later cancellation and sell-off of the underlying Indian shares to retail investors here, who gobbled up these shares thinking that the company was doing a great project on massive GDR proceeds.

It is common for a GDR issuing company’s stock to rally during the run-up to GDR and the period when the Issue is open. For example, Ram Kaashyap has rallied from its 52-Week Low of Rs. 5.33 on July 11th to its 52-Week High of Rs. 35.80 on February 1st - a gain of 572% in less than 7 months. 

Interestingly, the GDR opened on August 16th 2011 and closed on January 20th.

The Ram Kaashyap GDR was at par, which means that if there are any real GDR subscribers, they are sitting on a mark-to-market gain of 200% now.

Even more interestingly, on February 6th 2012, it was filed by Ram Kaashyap at BSE that promoter A Venkatramani had sold of 2.28% of his stake, for Rs. 48 lakh, through an off-market sell during late December.

Ram Kaashyap stock prices too is likely to crash if the GDRs are cancelled and the underlying shares flood the market. 

The GDR process is currently being made stricter by SEBI to prevent further misuse.

Sanraa Media too has had GDRs, all of which were cancelled later, contributing to the bloated equity base. The biggest risk for investors is also this equity base, if the promoters decides to go in for an equity reduction, as they have done in another group firm.

Other issues with Sanraa Media include a controversial hive-off of their core animation business which has delivered noted works like ‘The 99’, the fate of substantial investments in undisclosed companies overseas, and their decision to focus on a lacklustre segment like IT Training, post the animation hive-off.

Despite the new circuit  filter coming into force on Tuesday in Sanraa Media, the circuit limits were tight at Rs. 0.11 and Rs. 0.10. Sanraa Media closed Tuesday’s trade at Rs. 0.10, unchanged from last close. 

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