Learnings of the Week-1. (3/3)

Thomas Russo; on “Global value investing”

video link:
https://youtu.be/skrSif0vhOk

  • When you found yourself alone in the jungle and you see the wild animal coming charging you, if you stay freeze, it will ignore you will pass away, and if you started running, it will chase you
  • The same rule is there for the market, if you see there is the falling market (wild animal), stay freeze instead of running out of the market
  • Equity is asset which creates wealth in long run, equity is capable of enduring short-term pain for long term gain
  • The only thing that government give to investors is no tax on unrealized gain
  • And staying for long term with unrealized gain is good practice
  • As an investor, we should look for a business with strong consumer brand
  • Consumers don’t want other brand instead of a particular brand is what called brand loyalty, we should reinvest in such brands who are there in consumer psyche
  • Companies who are willing to present things earlier are great, as they have such predictability of what is going on
  • It is better to have companies who have multilingual and multicultural managers
  • What should be there in analyst? The capacity to suffer is the answer
  • In the world, people want easy, fast & regular returns and they generally don’t get it, in such environment, analysts with the capacity to suffer are rare
  • For company too, having capacity of suffer is to bear losses for some years to have strong business afterwards
  • Family controlled businesses have a positive flavour from businesses who haven’t, it matters very well at strategy execution

Case study of ED’s fictitious blames on KBRL ltd

Article link:
https://candorinvesting.com/2020/04/30/krbl-governance/amp/?__twitter_impression=true

  • The famous value investor Mohnish Pabrai tried to buy a significant stake in KRBL from one of the existing investors – Omar Ali Balsharaf
  • But Enforcement Director has blocked that transactions as Balsharaf was one of the accused in the VVIP chopper scam and he has purchased KRBL shares using crime money
  • High court rules that ED’s blocking this transaction is out of law and also committed that the scam was happened in 2005 and Balsharaf had purchased shares in 2003, hence the purchasing of shares with crime money is worthless blame
  • Gautam khaitan was independent director of KRNL from 2007 to 2013, and when his name appeared in VVIP scam, he resigned from the company
  • In a charge sheet filed by ED in Jun-19 it is alleged that Gautam Khaitan has been the beneficiary of Rs 850 Cr of slush funds in various defence deals and part of money is routed through step down subsidiary of Dubai – RAKGT
  • Gautam khaitan was arrested in August 2018 for VVIP scam
  • RAKGT is said to be situated in 2007 in Dubai as subsidiary of KRBL
  • KRBL transferred shareholding in the name of nephew of KRBl promoter named Anurag Potdar
  • The KRBL management claims that they have nothing to do with RAKGT and it is being run by its nephew and they do not list RAKGT as related party
  • From this all, it is clear that KRBL has only provided a way to route the crime money
  • Money routed by KRBL is much lesser amount than expected to involved in this scam
  • After this all, ED here attached KRBL’s land and plant by saying it was born by crime money

The case against ITC in the 1990s

  • ITC was alleged by ED that it had done evasion of excise duty and routed it through its Singapore based subsidiaries
  • Total 15 executive of ITC were arrested including former chairman of ITC
  • After 4 years of investigations, the ED finally decided to press formal charges in 2002

IT tax demand notice

  • IT department demanded Rs 1270 Cr from KBRL as they have wrongly reported expense of paddy purchase from farmers
  • KRBL claimed that they have make all paddy purchases by cash and directly from farmers
  • After 12 months, the tax demand notice of Rs 1270 Cr was reduced to Rs 101 Cr

Take away:

  • From this entire case study, we can say that,
    • That is not confirmed that KRBL facilitated the routing of bribe money in the VVIP Chopper scam
    • ED clearly lied and acted outside the law to block the Balsharaf’s transaction
    • The massive Rs 1200 Cr IT case against KRBL and attachment of land and plant also seems to have been fictitious
    • ED have made fictitious and baseless cases for KRBL

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