Rolta entire game plan

With the recent release of Glaucus research, Rolta shares nosedived with vigorous selling on the exchanges. Stock is down close to 20% in last three days. Even the astute investor are left wondering:

1. Should Glaucus report be taken on its face value

2. How long we will see downward price movement, and most importantly

3. What is the real value of Rolta

While thinking about these question, I came up with something equally interesting and sinister as mentioned by Glaucus research. 

First thing, Glaucus research should not be taken with its entire content at face value. We have come across similar report earlier by Canadian research firm Veritas. One major difference here is Glaucus doesn't even disclose analyst name and contact detail. Nothing is mentioned in their entire 32 page report or on their website. A research firm should always have their disclosure right, here we don't even know who prepared the report.

Lets move on to the content of the report. In the very first page of the report, they say two thing. One, credit rating firms are misled as Rolta window dressed their financial statement. Two, Rolta raised funds from overseas market as they will not be able to do it in India. Both things can't be true. If the credit rating firm are misled then it is fairly easy for the company to raise fund in India. 

So I think, there is another reason why Rolta raised money in US. I will come to that point at a later stage when I discuss what is the real value of Rolta shares.

It seems Glaucus has done detailed research on Rolta, but they missed on few things.

Why is Rolta promoter increasing their stake in company over the last few years. If the accounts are window dressed and profits overstated, promoter is the first person to know it. Then why K K Singh ("promoter") is deploying crores of money into a dead company. At this Juncture, let me take a step back and explain how promoter has increased its stake in Rolta.

K K Singh has increased stake in Rolta since last few years. The promoter buying in Rolta was very fast till share price was less than 80/sh or when the stake in company was less than 50%. Promoter buying in Rolta can be verified from the bse website link below:

http://www.bseindia.com/stock-share-price/stockreach_insidertrade.aspx?scripcode=500366&expandable=2

Besides, here is detail how K K Singh has increased his stake in Rolta (Again source is bse website)

Dec'14 - 51.09%

Dec'13 - 50.32%

Dec'12 - 44.22%

Dec'11 - 43.21%

It seems K K Singh love for the company has lowered once the stake reached over 50% or when the share price moved above Rs100. Both is partially true. Promoter has slowed buying shares because if they would have continued with the same pace, they would easily breach 55% limit of shareholding. SEBI rule says if promoter shareholding increase above 55% they have to launch an open offer. It seems Mr. Singh intent is not to launch any open offer, but just create that buzz and buying interest from retail investor in anticipation of open offer. One more reason can be he doesn't believe the value of Rolta shares above 100.

Here I bring my first point why Rolta raised money overseas.... connect all the dots .... and conclude my story.

Rolta raised the debt abroad because they wanted to have visibility in the overseas market. Their bond was subscribed in record time, a milestone you always like to show whenever you will go again and raise money overseas. K K Singh wanted to rope in an overseas investor/PE or an FII and wanted to get premium valuation for his company which doesn't make money as much it claims to be making. By increasing his stake gradually, he kept retail investor interest in his company intact. The FII or PE would have either purchased newly issued shares of Rolta or buyout from promoter, in both cases K K Singh stakes would have fetch much higher amount than he has invested.

This bring me to last question that I raised at the start of this article, What is true worth of Rolta. To be fair, I would say "I don't know". But I am very sure that the promoter of the company knows it very well. They will start buying again into Rolta, once it moves below that price. At this juncture, I would like to make one more point, promoter last investment in Rolta was close to Rs100. This might be the value of Rolta... or this incremental investment was made to lure more retail investor... to earn higher return on chunk of its investment that was made when the share price was close to Rs60. I would say let promoter increased their stake and take their holding above 55%, we can very well know real value of Rolta from the price they give for open offer.

Till then my guess is as good as yours .....