Geodesic price halves post its buyback

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MUMBAI: The shares of Mumbai-based mid-level software company Geodesic have halved in value since the company announced a share buyback late last November. Market experts attribute the fall to concerns over repayment of outstanding foreign currency convertible bonds (FCCBs), due this Friday, sale of pledged shares by lenders, a stretched balance sheet and corporate governance issues. The current stock price is Rs 22.90, with a market capitalisation of Rs 206 crore, almost 65% down from its 52-week high.

At this price, it is trading at a P/E multiple of less than one on a fourquarter trailing basis despite the company having posted a net profit of Rs 259 crore for the financial year through June 2012.

On November 27, Geodesic said it would buy back shares up to 25% of the outstanding equity at a maximum price of Rs 75 a share. The steep fall since then has surprised many investors.

The company blamed lenders for the fall, saying they sold pledged shares. It raised $125 million (over Rs 600 crore at current conversion rates) through FCCB in January 2008 with a high conversion price of Rs 302 for an overseas acquisition. But, no acquisition took place. The conversion price represented a premium of 35% over the price back then. The FCCBs are due for redemption on Friday.

“The foreign currency convertible bonds will be redeemed and not converted, given the difference in conversion of the share price,” Navita Sharma, head of corporate communications, said in a reply to ET.

The company’s cash and bank balance has risen from Rs 344 crore in March 2010 to Rs 1,132 crore in June 2012. During the period, the debt has risen from Rs 587 crore to Rs 1,099 crore. Geodesic paid Rs 58 crore as interest in FY2012 despite the huge cash on its books, making analyst feel something is amiss. “The Geodesic stock price, EPS and PE defy all known market logic. A company earning over Rs 200 crore profit each year for the last four years is trading near Rs 200 crore market cap,” said Arun Kejriwal, founder of Kris Research. “Investors don’t buy this story and want to avoid the counter at all costs,” he said. But, the company says an increase in debt is due to dollar fluctuations of FCCBs and working capital requirements.

“The debt was raised to offset delayed receivables, towards GeoAmida and ACMR components to service overseas/Indian orders and towards payment to third-party software components being used in our software,” the company said. “We raised the debt as most of our cash was invested in deposits and the maturity of the deposit time-lines were not in line with our need of the working capital,” it said.

Most domestic institutional investors have exited from this counter, but foreign investors, including Fidelity, Morgan Stanley and Raiffeisen Kapitalanlage, currently hold 29.29% stake.

As on December 2012, 2007 foreign institutions held 56%. There is general mistrust among investors over the stretched balance sheet despite a large unutilised amount of cash lying overseas.