Monday, May 14, 2012

Geometric Stake Upped by Rakesh Jhunjhunwala for Rs. 6.25 Crore

Jamshyd N Godrej, Chairman, Geometric Ltd.

By Associate Editor:

Geometric Ltd (BSE: 532312, NSE: GEOMETRIC) counter on Monday, 14th May 2012, witnessed a significant buy by its largest non-promoter shareholder and ace investor, Rakesh Jhunjhunwala, when he bought 5.04 lakh shares in NSE and 4.96 lakh shares in BSE.

This was disclosed by National Stock Exchange and Bombay Stock Exchange after trading hours on Monday.

Both the buys were at Rs. 62.51 a share, and at both the exchanges there were no identifiable sellers offloading more than 0.50% stake. 

The combined buy amounting to 10 lakh shares is around 1.60% stake of Geometric. As per the latest Share Holding Pattern for Q4, Jhunjhunwala and wife Rekha held 8.46% stake, making them the largest holders, well ahead of even institutional holders like IDBI, Royal Bank of Scotland, Credit Suisse, LIC, and Religare.

On the fundamental side, the engineering services & engineering IT solutions provider had a sluggish year in FY’12 with consolidated net profit growing by only 7.29%, even while consolidated revenue grew by 32.31%, thereby revealing margin pressure. The tax outgo has also jumped in FY’12.

The sluggishness was most evident in the most recent Q4 numbers. While revenue has grown reasonably on a year-on-year basis, it is quite sluggish on a sequential basis, improving by only 2.7%. Bottomline performance was even bad with Q4 net profit dipping on both YoY and QoQ basis.

There were some peculiar points worth noting in Geometric’s Q4 numbers. For a company that made just Rs. 17.60 crore in consolidated net profit in Q4, it has paid Rs. 3 crore as consultancy fee to an external agency advising it on better organizational structure. The company has also disclosed that it has to pay Rs. 9 crore more to this management consultancy in the current fiscal, and that it will affect the EPS.

Secondly, Geometric had disclosed about the necessity for a reconciliation in its accounts relating to debtors, that the company claims to have arisen due to some misallocations. But the amount involved - around Rs. 8.20 crore - is large compared with its P&L.

The company also incurred a forex loss of Rs. 5.50 crore during the quarter, which affected its margins. Another headache has been the higher tax outgo due to its profitable US subsidiary now attracting higher taxes.

Before the Q4 results were announced, the stock had a dream run in the year-to-date, compared with many comparable scrips. Due to reasonable bottomline performance in the first three quarters, Geometric stock had soared from a 52-Week Low of Rs. 34.75 recorded on 19th August to a 52-Week High of Rs. 80.90 on 13th April, which is an almost 133% spike within 8 months.

The rally also seems to have been aided by the wide following of Jhunjhunwala’s moves, who had upped his stake in the company by 0.59% in Q3 and Q4 combined. But these quarters saw significant FII selling, when both FII and DIIs reduced stakes by a combined 1.83%.

However, post the poor set of numbers in Q4, Geometric started correcting, and Jhunjhunwala’s buy on Monday has come after around 23% correction from the peak. Also, Indian market has been falling steadily over the past several days, making the situation ripe for a rebound.

In any case, the celebrity investor’s buy on Monday has come as a badge of approval that Geometric may tide over its issues like the accounting problem, high consultancy cost, higher taxes, and falling margins.

However, investors in the stock would have to wait more for a sustained appreciation, like moving ahead with new yearly highs, as the Geometric management itself has guided for only a EPS growth of 10%, even while it expects revenue growth to be at 16-18% on more business from its industrials segment in Europe and Asia.

On Monday, the stock closed at Rs. 63.05 in NSE, up by 1.61%.

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