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Wednesday, November 21, 2012

Glodyne Technoserve: Destruction of Shareholder Value!

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.

14 comments:

  1. Very Good Information. How could you manage to get all the details just in 1 day.

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  2. What is your opinion on RS Software?
    Enjoy reading your blog. Thanks.

    ReplyDelete
  3. Naren

    Its great write up on this stock. keep it up and thanks for sharing

    Venkat

    ReplyDelete
  4. You are really doing a great job !!....we all thank you from the bottom of our hearts....

    Your knowledge and wisdom is not restricted to personal use, but of so much value to so many people at large...

    Thanks again :)

    ReplyDelete
  5. Thanks Naren..waiting for 20 level to enter..

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  6. Thanks folks for your comments.

    RS Software - i had a quick look at financials, numbers look good. Price run-up has been strong till date. Now trading at 2.5X of book value. Can correct slightly from here. Need to analyze in depth, but overall looks good to me.

    ReplyDelete
  7. Hi Naren....I started following your blog only recently, that is when you wrote for the first time about Zylog....it was from your article, that I gained courage to buy Zylog at 67 levels....and sell today at 78 levels....initially I had bought at high prices from 134 to 79....later bought much bigger qty at 67 odd to avg out at 71....finally exited today at 77-78 levels as cicuit opened up yet again today...

    I really appreciate your in-depth knowledge and great analytical capability !! Thanks a lot.

    Naren, if you could just look up one stock, I would be greatly helped.

    There is this one counter that I'm very bullish on and bought at 97 levels...now it is at 130 odd....had made a peak of 787 in 2010...into financial sector...main business is lending business...it has ZERO NPA.....book value at 232...netwoth of co is 824 cr...

    Ya forgot to mention the stock is Money Matters Financial services....

    Also with rate cuts from may be Jan...it would get benefited, I believe...

    Naren, can you kindly do some technical as well as fundamental analysis of the same and throw more light as to whether it can be a good long term investment.

    (Naren, also note....there was a CBI raid in 2010...n it has crashed to 44...but then I learnt, that it has got a clean chit...news not confirmed about clean chit though)

    Thanks again Naren....you have been impeccable in your analysis....so happy to have found your blog...!! :)

    ReplyDelete
  8. Hi Naren. It's been an honour reading ur blog.....very informative and comprehensive...... it would be a privilege to read something on PNB, SAIL or some blue chip stocks.......

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  9. Hi Naren - your insights and analysis is very good and very helpful. It sure is a pleasure to read your blogs. This is the first time I have come to this site - now I am adding it to my favs and intend to follow your reviews on a regular basis.
    Best wishes,
    Rajat

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  10. Thanks folks for your valuable comments.

    Hi Ganesh - I have written a note on Money Matters. Hope that helps.

    ReplyDelete
  11. Dear Mr.Naren,

    I have accumulated the shares of Glodyne, Average of Rs.40/- per share. Now the price is Rs.26.35. Is there any chance to come up?
    Saji

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  12. Dear Saji,

    As i mentioned in the article:

    "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"

    "Then exit in bear rallies for the scrip at around 30-35"

    Hope this helps.

    ReplyDelete
  13. Hey...
    nice work blogging.. you should definitely make money off it..:)
    I just wanted a few suggestions about glodyne.. right now the shares have hit a rock bottom of 15 n I don't think its gonna get lower. I read an article which says that they are going to expand in the coming quarter..
    it looks promising.. what do u think?

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  14. N I'd be very thankful if u could give me an insight regarding the possibilties of investment in subex.

    ReplyDelete

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