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Cochin Malabar: Gearing up for a second innings - Outside View by Luke Verghese
 
 
Cochin Malabar: Gearing up for a second innings

The company is today an anachronism of what it once used to be - but it appears to be getting a second life of sorts on a different platform

A creation of Pierce Leslie

This undertaking was a part of the flock of plantation (tea, coffee, rubber) companies that was spawned by the erstwhile famed managing agency Pierce Leslie and Company. The forbears were one of the largest ‘managing agencies’ in the plantation industry. The latter is today known by the name of Pierce Leslie India Ltd, and dabbles in commodities trade, hotels, and real estate. Several of the plantation companies that it helped to procreate are today a part of the Bangur group. The Pierce Leslie managing agency stretched across  many plantation units-- Periakaramalai tea, Thirumbadi Rubber, Cowcoody Estates, Kil Kotagiri Tea, Chembra Peak Estates, Kalasa Tea and yet more. At some point in the 1960s the foreign holding in Pierce Leslie was sold to the Bangurs of Kolkata. But the major shareholding in Cochin Malabar was held by interests based out of Mumbai, along with that of the domestic financial institutions, while the Bangurs had to make do with a minority stake holding.

The shareholding in Pierce Leslie including that of Cochin Malabar fell into the lap of the Gopal Das Bangur group in the great family carve up of the eponymous Bangur patriarchy. This branch today controls a number of tea estates based out of Assam including Joonktollee Tea, which we are informed plays the role of mother hen to Cochin Malabar. The mother hen directly holds 22.94% of the paid up equity of Rs 17.7 m in the latter. The total holding of the Bangurs in the company is not known-but there are two other group companies in the list of shareholders holding more than 5% of the paid up equity. If one adds up the holdings, the total shake holding in Cochin Malabar amounts to 40.84%.

A large plantation company


In its heydays, Cochin Malabar controlled some 6,000 acres or so of low yield plantation land on which it grew rubber in Trichur Dist and the Malabar region of North Kerala. It also grew some tea. It was also an actively traded scrip on the Madras stock exchange in the days of yore.  (And if my memory serves me right the equity share initially had a face value of Rs 2 as was the more of all plantation companies back then). The affairs of Cochin Malabar were for decades controlled by interests out of Mumbai. The Bangurs were able to wrest control of the management of Cochin Malabar in 2008 (getting control of some of the estates in the trade off I understand) from the Mumbai based interests. This followed the filing of cases by the Bangurs in the courts about the mismanagement of the affairs of the company by its governing body. The cases led to an out of court settlement or some such. The acrimonious sword fencing between the two warring parties also saw them battle to take over the stakes of the minority shareholders. With the floating stock being mopped up it also resulted in the shares of the company being delisted for trading as it fell afoul of the listing guidelines. However there may still remain minority shareholders in the company. Today the chairman of the board is Hemant Bangur, the son of Gopal Das Bangur.

Under new management

The vestige of the company that the Bangurs inherited was up to no good from a reading of the financials. The company still has accumulated losses of Rs 243 m as at end March 2012. A net profit of Rs 53 m on revenues of Rs 240 m for the latest year helped it to reduce the loss by a like extent. In the preceding year it posted a profit of Rs 34 m on revenues of Rs 204 m. The net profit included other income of Rs 7.1 m against Rs 2.5 m previously. This other income includes ‘excess liabilities written back’ amounting to Rs 4.7 m. Also, the revenues for both years include pickings which cannot be depended upon for an encore. It realises substantial inputs being income from the sale of trees. (Before commencing the replanting exercise old rubber trees are sold). The revenues from this source amounted to Rs 34.6 m against Rs 10 m previously. And, given the scale of the accumulated losses (it takes quite some effort to run a rubber plantation to the ground) that the new management had to contend with; it resorted to a time tested neat trick to get round it. It revalued the cost of the freehold and leasehold land that its plantations stand on, and credited the excess figure to revaluation reserve.

The financials

On different pages the company has furnished different numbers on its plantation holdings. On one page it has given the names of two tea plantations and four rubber estates. On another page it has tagged the additional name of Sampaji Rubber estate. There is also a problem of one of its plantations, Kinalur Rubber, which had been put up for sale for the recovery of statutory back dues. At least two of the plantation properties represent leasehold lands. In any event the revalued book value figure of the freehold land is stated as Rs 216 m, while the figure of the leasehold land is given as Rs 218 m, and that of buildings at Rs 99.3 m. In other words it holds as much leasehold land as it owns freehold land. The total revaluation numbers amounted to Rs 483 m, but the sum presently credited to the revaluation reserve is Rs 416 m-after transfer of sums to the P&L account each financial year to cover the higher depreciation provision. The revaluation figure on tap is more than sufficient to cover the accumulated book losses. The company has no general reserves, or any surplus lying in the P&L account, but boasts other capital reserves of Rs 103 m. It does not in way increase cash flow whatsoever.

Getting its finances in order

Very creditably the company was able to pare debt during the year to Rs 106 m from Rs 218 m previously or a fall of Rs 112 m. The year-end debt includes a loan from the holding company amounting to Rs 52.4 m, the same as previously. In the preceding year it included borrowings of Rs 165.5 m sourced from body corporates. The company is being charged interest on these ‘outsourced’ loans too. The cash flow statement which in the normal course seeks to explain how a company is able to generate funds, and then spend it, appears to be totally at odds with the reality. The operating cash flow statement states that the ‘trade and other receivables’ fell by Rs 53.7 m, thus generating that extra cash inflow. But this is not the true state of affairs. In reality ‘trade and other receivables’ actually rose by Rs 12.73 m during the year thus actually deflating the cash inflow by a like extent. How it cobbled together the cash flow statement to finally arrive at the correct cash balance at year end is another matter. What the company’s accountants have achieved is pure fantasy no less.

In these difficult times two other factors have played a part in its finances. One in the company’s favour, albeit of a temporary nature, and the other against the company’s interests. As stated earlier the Kinalur estate had been put up for sale to recover statutory back dues from the company, and towards this end the company has received an advance against sale for Rs 159.5 m. This is no small sum given the various peccadilloes that the company has had to undergo the past many years. The company has now called off the agreement for sale citing non fulfilment of obligations on the part of the buyer. The case in now sub-judice and till the passing of the order by the court, the advance represents a free float. A smart move do doubt on the part of the vendors. If the court decides in the company’s favour it will however impose a sudden sharp financial burden on the company. On the flip side however the company has had to pay Rs 22.6 m under protest to the Kerala State Govt due to a mega hike in the lease rental fees on its leasehold plantations. This matter too is sub judice. The pitfalls of doing business are many and varied.

A merger in the anvil

But in the middle of all these shenanigans, the management has resorted to some tricks of its own. The management in its wisdom has decided to demerge all the plantations and other activities from the fold of Cochin Malabar and merge it with the parent company Joonktollee Tea. Besides, some of the plantation lands are leasehold properties. What is the eminent sense behind this move is not quite fathomable as the costs involved in the transfer of these properties would be substantial. Barring this disadvantage there does not appear to be any other advantage at first sights. The point is that Cochin Malabar will continue to hold on to the book losses - it will not get transferred to the books of the new owner as the company per-se is not being merged. At least this is my reading in this matter. The major creditor however is the parent-that part is well taken care of and making it that much easier for the merger to take place. Besides, the combined properties would be subject to agricultural income tax under three state government regimes (presently Joonktollee is subject to the diktats of two state governments)-which have their own tax code. The merger proposal is however now under the scrutiny of the high court of Kolkata. What is left unsaid here is that Cochin Malabar gets reduced to that of a shell company with no commercial activity of its own. What happens then to the minority shareholders of Cochin Malabar in the bargain-do they get to become shareholders of Joonktollee? Unfortunately, I do not have access to the merger details.

Some light at the end of the tunnel?

For the present the financials of these plantation units etc are also shown under the banner of Joonktollee in its consolidated statements. The consolidated results show gross revenues of Rs 827 m and a profit before tax of Rs 113 m, against figures of Rs 715 m and Rs 60 m respectively. The standalone results -excluding the financials of Cochin Malabar-show figures of Rs 556 m and Rs 54 m respectively, against figures of Rs 494 m and Rs 23 m previously. Simple extrapolation gives the figures pertaining to that of Cochin Malabar. The equity base of the consolidated company stood at Rs 32.5 m and reserves and surplus of Rs 970 m.

Well considering that the shares are delisted for trading due to lack of public holding in the counter, the holders of Cochin Malabar shares if allotted shares in Joonktollee will at least get liquidly in the new counter. It is a no brainer really at the end of the day.

Disclosure: I do not hold any shares in this company, either directly, or under any non discretionary portfolio management scheme

This column Cool Hand Luke is written by . Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.

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