Thursday, January 17, 2013

Karuturi Global Promoters Lose Nearly 40% of Their Shares

By Mohammed K, Special Correspondent:
Thursday, 17th January 2013, 08:24 PM IST:

Karuturi Global Ltd (BSE: 531687, NSE: KGL) has disclosed its latest Share Holding Pattern (SHP) at BSE and NSE. The highlight of this latest SHP for Q3 is that the promoter group of the floriculture and agriculture company has lost 39.34% of their stake in the firm.

KGL promoters already held only 18.05% stake in the firm, as of Q2 end, which is relatively very low by Indian mid-cap / small-cap standards. But in Q3, due to pledged shares by promoters getting invoked by the lenders, promoters shed an additional stake of 7.1% in the company.

StockExplain News had earlier reported on the high level of pledges by Karuturi Global’s promoters, and the risks it posed for public and retail investors in the counter. Promoter pledges had jumped from 32.56% in Q1 to 81.74% by Q2 end.

The lenders invoking pledged shares during the quarter was entities belonging to the ACG Pampac Group.

Total promoter group stake in the firm now stands at just 10.95%. And as of Q3 end, 65.38% of the promoter stake was pledged with various lenders.

The apathy shown by the promoter group in protecting even their small stake in the company, comes across as strange, as this Indian floriculture company with its main base in Kenya has been supposedly on the verge of a turnaround through its first productive agricultural harvest in Ethiopia.

Allowing nearly 40% of their shares to be invoked by the lenders hints at either a severe cash crunch for the promoters, or that their priority is not their stake in the Indian-listed parent company, Karuturi Global Ltd, which operates primarily through several large subsidiaries in UAE, Netherlands, Kenya, and Ethiopia.

In any case, this stance taken by promoters on the parent company’s stock, hit long-term retail investors in the counter further. Karuturi stock which had steadily fallen from its 2010 October high of Rs. 38.70 to Rs. 5.14 in early Q3, further shed value during this quarter, marking a low of Rs. 2.85 which was a loss of nearly 45% in this quarter itself.

The next crucial highlight of Karuturi’s Q3 SHP is that the stock continues to be plagued by offloading by institutional investors, which has been reported by StockExplain News during four earlier quarters.

During Q3 ending December 31st, this offloading gathered momentum. Institutional holding fell from 24.24% at Q2 end to 20.98% by Q3 end. Number of institutional investors in Karuturi dropped off to 19, from 23 investors in the previous quarter, showing that 4 investors have fully exited the counter.

But the damage to the stock price was more inflicted by the larger institutional investors who did not exit fully, but sold off larger quantities. 

The largest seller during the quarter was India Focus Cardinal Fund which sold off 2.15% stake, and thus ceased to be the largest public shareholder of Karuturi Global. StockExplain News had earlier predicted about upcoming massive sells by India Focus Cardinal, as this fund house which is under probe by Securities & Exchange Board of India (SEBI) for alleged GDR manipulation in several stocks had obtained a special permission from Securities Appellate Tribunal (SAT) for selling off shares in its portfolio including Karuturi Global Ltd.

Despite such massive sells, neither India Focus Cardinal nor Karuturi Global was seen disclosing the same in BSE & NSE during Q3.

The second largest institutional seller was Emerging India Focus Funds, which sold off 0.93% stake in the company. StockExplain News had earlier reported that Emerging India Focus was also a seller during Q1.

Perhaps the only institutional investor who bought KGL shares in Q3 was Citibank NA New York NYADR Department, which now holds 1.42% stake in the company. The likely buy quantity should be around 0.43% only, considering that this Citibank arm had disappeared from institutions holding more than 1% stake during Q1, and considering that total institutional stake is now down by 3.26%.

Technically, there were buys by two body corporates during this past quarter. However, the largest among them is ACG Pampac Machines Pvt Ltd itself, whose buy is a case of pledged shares being invoked. ACG Pampac, which was not in the list of public shareholders holding more than 1% stake as of Q2 end, now holds 4,32,34,347 shares or 5.34% stake. 

Karuturi Global has also disclosed in Q3 SHP that this lender has intimated that it invoked 5,74,94,347 shares, out of which it sold off only 1,42,60,000 shares.

The remaining shares with ACG Pampac will be a high risk for the Karuturi counter, especially if the stock slips further, as this lender had sold off such huge quantities at Rs. 2.90 and Rs. 2.88. And on the other hand, such potential sellers are likely to utilize any rally in the counter to exit fully, thereby limiting any kind of upmove.

The other corporate entity buying Karuturi stock during Q3 was Kotak Securities Ltd, which now holds 1.17% stake in the company. But the actual buy quantity by Kotak during the quarter is difficult to ascertain as stakes below 1% need not be disclosed.

As reported by StockExplain News on multiple occasions earlier, retail investors remained the only significant and consistent buyers in the Karuturi counter. Total stake held by individual investors swelled by another 2.64%, against sells of similar quantities by the institutions, India Focus Cardinal and Emerging India Focus.

The continued institutional sells, as well as the lack of significant institutional buys, are mainly due to the headwinds facing the company in both its floriculture operations in Kenya and agriculture operations in Ethiopia, as well as the mounting debt burden due to a recent default on an FCCB amounting to Rs. 332.5 crore.

In contrast, the company’s consolidated annual profit run rate is only Rs. 155.85 crore. Even the upcoming numbers from the recent harvest is unlikely to salvage the financial performance. Karuturi Global is also facing a sharp jump in contingent liabilities of around Rs. 156 crore due to tax claims by India and transfer pricing claims by Kenya.