Thursday, October 18, 2012

Karuturi Global Sees More FII Exits in Q2

Sai Ramakrishna Karuturi, CMD, Karuturi Global Ltd.

By Tony J, Associate Editor:
Thursday, 18th October 2012, 02:55 PM IST:

Karuturi Global Ltd (BSE: 531687, NSE: KGL) has filed its latest Share Holding Pattern for the second quarter, in BSE & NSE, which the exchanges published on Wednesday.

The leading floriculture company’s stock failed to attract any new foreign institutional investors in Q2, despite the company nearing a harvest of maize in its Ethiopian agricultural foray.

The total lack of interest shown by FIIs was also despite the stock ruling at 5-year lows, the general bull run during Q2, and the quarter witnessing a sharp fall in KGL stock from the quarterly high of Rs. 5 to a quarterly low of Rs. 2.80.

Though the stock recovered smartly by the end of Q2, the latest SHP reveals that the recovery was led solely by a few large retail investors in the counter.

Even more unfortunately for the Karuturi Global stock, Q2 continued the disturbing pattern of large offloading by existing foreign institutional investors, which StockExplain News had reported on three earlier quarters too.

FIIs sold off 94.22 lakh shares in Q2, which is 1.16% of Karuturi’s equity base, and approximately equal to four-days’ total traded volumes of the stock in NSE & BSE.

Almost all of that dumping was picked up by retail investors, with non-institutional holding jumping by an identical 1.15% to reach 56.28%. Even among non-institutions, while body corporates reduced their stake, only individual investors increased it.

The only other new buyers were 2 institutions coming under the category ‘Financial Institutions / Banks’ who together bought 96,300 shares amounting to a tiny 0.01% stake.

Two FIIs completely exited Karuturi in Q2, taking their tally to 19, and their total holding to 24.03% from 25.19% in the previous quarter.

Deutsche Securities Mauritius which held 90.37 lakh shares or 1.12% of KGL’s equity base in Q1, has been the major seller during Q2, taking into account the total sell quantity, as well as the fact that it has now disappeared from the list of major holders having more than 1% stake.

Deutsche Securities was arguably the most high-profile institutional investor in Karuturi Global. As reported by StockExplain News earlier, another similar profiled investor, an arm of Citibank, had sold off in Q1 and ceased to be a major holder.

The institutional investors are obviously taking their cues from the sharp erosion in Karuturi Global’s return ratios like RoE, the company’s failure to achieve full financial closure for their agricultural foray in Ethiopia, an imminent default in a mature FCCB, and most importantly, the fact that promoters have not increased their stake in the company.

Despite holding only a minor stake of 18.05%, and despite the stock falling further by a deep 44% during the quarter, promoters haven’t increased their stake.

Instead, promoters continued to pledge more of their shares in Q2, with total pledges jumping from 32.56% in Q1 to 81.74% now, which has now become an additional risk in the stock.

Post Q2, on 10th and 11th of October, Karuturi Global stock rallied by nearly 31% raising hopes of promoter buys or institutional entries. But data from bulk deals, block deals, SAST, and insider trading disclosures show that no such buying has happened. Also, by Tuesday, the 17th, the stock has shed 20% of that gains.

In an equity grading report commissioned by Karuturi during the end of Q2, the rating agency ICRA has disclosed about the risk from an imminent default on an FCCB redemption worth Rs. 332.5 crore. The redemption date is 19th October 2012. Some of the additional risks cited by ICRA include a sharp jump in contingent liabilities to Rs. 156 crore due to tax claims by India and transfer pricing claims by Kenya, as well as the possibility of further equity dilution and significant delay in getting adequate return on capital.

Compared to the FCCB repayment of Rs. 332.5 crore, Karuturi Global’s consolidated annual profit run rate is now only Rs. 157 crore, which means the FCCB repayment is worth more than two years net profit as of now.

According to Sai Ramakrishna Karuturi, CMD of Karuturi Global, who spoke to a national financial daily on the issue, the upcoming maize harvest is expected to add only $12 million or Rs. 63.6 crore to the bottomline in Q3. Further triggers for the stock will come from the upcoming FCCB restructuring as well as the Q2 results that will shed more light on its main floriculture business.

On Thursday, Karuturi Global opened slightly positive in NSE, and is now trading up by 10.23%.