Hyderabadi Biryani - Tasted really Bad

Hyderabad Investing sucks!! That is how my experience has been investing in companies based out of Hyderabad. The companies are among the worst in terms of communication of information to shareholders. I guess as Dilios say’s in the movie 300 “We did what we were trained to do, what we were bred to do, what we were born to do”.
The Hyderabadi Companies can replicate the above line with a small word at the end which says ‘-SCAMS’.
The premise comes from two companies that I ended up investing and from other examples that we all are aware of, Ramalinga Raju. Below I will write about the two companies

1. Premier explosives:A company based out of Hyderabad, whose website seems to have been updated ages ago. None of the phone numbers given on the website leads to the company. Even if you try calling the agents, most of the numbers are out of service and one number luckily got a response, a guy picked up the phone, but alas, he did not have the head quarter number.
   
   The problem with the company is the company has been maintaining its gross margin over the past quarters, which is a good sign as the raw material price rises have been passed on to the end consumer which is 90% times coal India. The worry is the employee expenses which have been travelling at the speed of light. On exactly the same quarterly sales as last quarter, the Q3FY11 results show that employee expenses have increased by 28%. In Q2 and Q1 the Y-o-Y increase was 19% and 25%. I fail to understand what has the company been doing without increasing the sales which is leading to such dramatic jumps in employee cost. I had asked the same questions to the management in the HOPE that would reply, but as it turns out that my hopes are based on FALSE EXPECTATIONS. I Have not received any reply from the company till date.


2. Nagarjuna Agrichem The name speaks of its Hyderabad origins, but I somehow got invested in the company due to two good years of growth the company witnessed where it made EPS of 40 rupees each year. But alas!! I was caught at the wrong part of the cycle. Anyways that is my mistake. The company had a plant shutdown for the DECEMBER quarter for 2 months and there was no investor communication!! Can you beat that!! I guess No!! Tata chemicals even if they close the plant for 15 days, they send out a notice to the exchanges. Well that’s the difference!!

I face a dilemma whether to book losses on these stocks or not. For the second one I will wait till the next year. On the first one, if the management replies to the emails that I have sent them after Q3FY11, fine, otherwise that would be my first BOOKED LOSS.

One more thing I was reminded of after the recent market correction is

“Markets go up the stairs, but come down the elevator” – warren buffett