Monday, July 16, 2012

Karuturi Sold by Citi, EIFF in Q1

By Staff Reporter:
09:29 PM IST, Monday 16th July 2012:

Karuturi Global Ltd’s (BSE: 531687, NSE: KGL) Share Holding Pattern for first quarter of FY’13 has been published at National Stock Exchange.

The noted international cut rose producer’s Q1 SHP continues the pattern of institutional selling and retail buying, as seen in the earlier two quarters, Q4 & Q3 of FY’12, on which StockExplain News had reported on earlier.

In the just concluded Q1, institutional sellers offloaded 1.23 crore shares or 1.52% of the total equity base. To put the sold volume in perspective, it is equivalent to 12 days of total volumes traded in NSE & BSE for Karuturi Global, going by the current 30-Days average volume.

Total institutional holding fell to 25.39% from 26.91% in the previous quarter.

The promoters were not buyers during the quarter, and the sold volume was fully absorbed by non-institutional or retail buyers, whose holding jumped by an identical 1.53% to reach 55.13% from 53.60% in the previous quarter.

Major institutional sellers during Q1 were Citibank NA New York NYADR Department and Emerging India Focus Funds. While the Citibank arm disappeared from the list of holders having more than 1% shares, EIFF sold off 44.61 lakh shares.

The Citibank division held 1.15 crore shares or 1.42% of the equity base as of Q4 end, and though exact sell numbers haven’t been divulged, the Citi’s sell is likely to be around 0.43%, taking into account the total institutional sell during the quarter was around 1.52%.

Both Citi and Emerging India Focus Funds, as well as the company, haven’t filed any mandatory disclosures with regard to these sells during the quarter. 

Interestingly, Central Depository Services (India) Ltd (CDSL) had reported that during the first two weeks of June, there was a high volume of off-market transactions in Karuturi Global, amounting to 85.97 lakh shares or 1.06% of the total equity. The share price had slipped post those trades, indicating that it was the first step of a silent distribution.

Apart from these two institutions, all other institutional holders weren’t net sellers or net buyers of Karuturi Global stock during the quarter.

Other major holders of KGL stock are India Focus Cardinal Fund, Elara India Opportunities Fund, Maxworth Investment, Rays Global Corporation, Tara India Holdings, Sry Crust, & Deutsche Securities Mauritius.

Karuturi’s largest non-promoter shareholder, India Focus Cardinal Fund, with an 8.17% stake is being investigated since September 2011 by Securities & Exchange Board of India (SEBI) for a large scale GDR scam involving 7 listed companies. IFCF which later obtained a special permission from Securities Appellate Tribunal (SAT)  to sell select shares in its portfolio, including Karuturi Global shares, has however not resorted to such offloading.

In a further interesting development on this issue, during Q1, India Focus Cardinal Fund has again appealed to SAT that it is facing practical difficulties in selling some scrips as the earlier SAT order mandated that the cash proceeds of such sales should be kept in a designated ICICI Bank account which can’t be operated by IFCF without the permission of SEBI. 

During a ruling in late June on the new appeal, SAT has ruled in favour of India Focus Cardinal, and allowed the firm to repatriate the proceeds too. However on SEBI contesting this order and asking time to file an appeal at Supreme Court on this issue, SAT has stayed implementation of its order favouring India Focus Cardinal, for four weeks, which expires by July end.

During Q1, Karuturi Global issued 7,47,416 new shares amounting to a minor equity expansion of 0.1%, due to their ESOP offers to two executives.

Promoters’ stake in the company is at 18.05%, and as per Q1 SHP, 32.56% of it has been pledged. 

However, post Q1, in the first week of July, promoters pledged another 1.55 crore shares or 10.60% of the promoter stake, taking the total promoter pledge to a significant 43.16% of the promoter stake.

On the fundamental side, consolidated Karuturi Global which had a healthy Return on Equity (RoE) of 21.19% in FY’08 on a healthy floriculture business, had steadily deteriorated in its performance during the next 4 years with RoE falling to 11.81%, thereby taking the stock off the radars of most institutional investors. 

FY’12 RoE is likely to be even lower, due to the year witnessing KGL dropping in net profit for the first time in several years.

Much of the damage to this floriculture stock was due to a massive 143.35% expansion of equity base between FY’08-FY’11, with the additional funds being used up in a controversial and high-risk agricultural foray in Ethiopia, which is yet to deliver any kind of earnings for the public shareholders.

The agricultural project is still awaiting full financial closure, as the company has faced some repatriation issues in Ethiopia, based on which its lender Axis Bank is known to have suspended disbursement on a sanctioned loan. Having forfeited that opportunity, KGL is now known to be pursuing another loan from Indian Overseas Bank, as well as looking at long term options like assistance from African Development Bank (AfDB).

The company has an even greater financial headache in an upcoming FCCB redemption in October that involves around Rs. 216 crore of repayment. Redeeming that outright is not an option before the company, for need of funds, as well as due to the size of such transaction, given that its consolidated net profit for FY’12 was around Rs. 152 crore only.

That leaves only a negotiated conversion into equity eventually, which may cause significant further dilution of earnings.

Karuturi Global is yet to announce its Q1 financial results. Traditionally, Q1 is one of its weaker quarters, due to lack of large-scale seasonal triggers for its main floriculture business.

Karuturi Global has a claim to be the world’s largest producer of cut roses with a capacity for 555 million stems annually, but it’s annual consolidated revenue is $0.1 billion only, whereas the global cut flower business (dominated by roses) is estimated at over $50 billion annually.

The positive triggers to look for in the stock are reasonable FCCB resolution, a sustained turnaround in floriculture business for better return ratios, better consolidated audit practices, better transparency regarding the ground situation in Ethiopia, better corporate governance practices, better commitment of promoters towards KGL stock, long-only institutional buying, and financial closure for the agriculture project.

During the quarter, Karuturi Global stock had a high of Rs. 5.55 and a low of Rs. 4.30 in NSE. On Monday, the stock closed at Rs. 4.45, down by 3.26% in NSE.