In response to my post on Zylog Systems here, I got a few comments to write about Glodyne Technoserve as well. Glodyne is not on my radar, hence I had a fresh look at charts and financials for this firm. Looking at the charts for Glodyne truly filled my heart with pangs of sadness, as this momentous crash has the footprints of thousands of investors trapped in the debris.
This is the same story for folks trapped in firms like Tulip, 3i Infotech etc. So a common theme across midcap IT firms in last 2 years, was to take huge debt and buy firms abroad at lofty valuations. When these arcane diverse businesses did not add up to a meaningful large picture, it created tremendous destruction of shareholder value. The process was to over-leverage the firm by taking up debt and as the interest rates moved up due to money supply tightening in past 2 years, these firms are now unable to pay debt, or to pay salaries on time and hence these erstwhile IT midcap names are reduced to 100-200 crore microcap stature.
Pl look at Glodyne chart below:
Unfortunate thing about this chart is that its broken the massive bottom of 2008 carnage of Rs 48 or so, and hence there is no visible support from past many years on this chart.
If we look as far back as 2005, visible support is at Rs 12, Rs 15 and Rs 20. So my guess is that this fall may stop somewhere at these levels at around Rs 20.
Obvious fundamental problem with this scrip is already known to most investors - They bought a IT Infrastructure company called Decision One. I visited the website of Decision One - not a very impressive website, more like a poorly done amateur job. So I don't know if the firm is worth the price Glodyne paid for them which is $104 million. This is 2.5 times the current market cap of Glodyne!
Other issues are Glodyne bids for e-governance kind of projects, which is again HW/SW mix, capex heavy and low margin deals. Hence the entire issue of raising more capital in this tight liquidity kind of market. Rumor in the market is that they haven't paid employee salaries on time. One more news item is ICRA has downgraded Glodyne Technoserve to the default 'D' level based on company's delayed payments of Commercial Paper worth Rs.75 crore caused by liquidity constraints.
So my gut feeling would be not to trust the financials as of now. Also I can't find the consolidated Balance sheet for year 2011- 2012. So how much total debt they need to serve now is a question mark.
So what should retail investors do:
I would suggest new investors to stay far far away.
If you have invested a small amount, again stay away and write off your losses.
If you are heavily in loss, you need to refer to EoD charts regularly. Buy at lower levels when a firm bottom is in place with heavy volumes and a up day. Mostly, it might happen at around 20 or so levels. Then exit in bear rallies for the scrip at around 30-35. This is similar strategy what investors need to adopt when they are stuck with huge losses in names like 3i Infotech, Suzlon, Unitech, Tulip etc.
Thanks for reading this note and keep writing in to us.