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Peirce Leslie: Introspection needed - Outside View by Luke Verghese
 
 
Peirce Leslie: Introspection needed

It is indeed a pity that a company with such shining brand equity is being run without any purpose or direction

A wisp of the regional powerhouse

Peirce Leslie is a mere wisp of the regional powerhouse that it used to be eons ago. A managing agency of sorts was among the other creatures that it sought to be, and initiated by its English forebears, Robert Peirce and Patrick Leslie. Over time it also begat shares in several corporatized plantation companies located in the states of Kerala and Tamil Nadu that was among its hallmarks. It was originally established as a private firm way back in 1859 for manufacture and trade, to take advantage of the increasing commercial prosperity of the Malabar Coast. Its first business was in the setting up of coffee curing works. It was converted into a private limited company in 1901 with its registered office situated in London, and its branch operations in India. Peirce Leslie was the secretaries and agents to such plantation companies' as Cochin Malabar Estates and Industries, Periakaramalai Tea and Produce, Kil Kotagiri Tea, Thirumbadi Rubber, Chembra Peak Estates, Pudukad Rubbers, Panora Tea and Produce, and so on. The total extent of these plantations probably ran into tens of thousands of acres. (But given its low stake holding in these companies, it lost control of all of them to corporate marauders many moons ago). And therein hangs a tale of shoddy foresight, but let that be.

Top dollar real estate

Today there is no English connection to it barring its name plate, as it has been for several decades now. It does not own any shares in any plantation companies either. What it boasts today is top dollar real estate which has yet to be properly monetised and four subsidiary companies with limited outlook (Including an apology of a portal called travel.co.in Ltd). Separately it appears to have an associate company (or some such) called PL Worldways Ltd to which banks have advanced funds through a charge on Peirce Leslie's office premises in Chennai. But the fact of the matter is that Peirce Leslie does not appear to have any visible direct of even indirect holding in this company. It appears that in spite of the poor showing of the listed entity the majority shareholder appears to be up to some manoeuvrings for his personal benefit. This would appear to be unbecoming.

Limited revenues

Currently the company generates limited revenues through the twin streams of 'Services' and 'Other income'. It is mostly moribund in all other respects. As a matter of fact it is a classic case study on what can go wrong when the management loses focus. The company is presently, largely speaking, a very closely held entity. More than 85% of its outstanding equity is held by an Indian corporate entity called Newbridge Capital Pvt Ltd, or some such. This company is based out of Chennai and the point person is Mr V Sudhakar, who also doubles as the CEO of Pierce Leslie. The Indian public still hold 14% of the outstanding equity capital. The company is listed for trading in the Madras Stock Exchange, but there does not appear to be any transactions in the secondary market whatsoever. That is not surprising given its financial non performance. The only choice that appears to be left for the oddball non management shareholder is to hawk their holding back to the management.

That apart, one wonders what the management of Peirce Leslie is up to. It is up to very little good for sure. It has accumulated losses to the tune of Rs 47 m, but against this there are reserves to the tune of Rs 38 m. But these reserves are mostly accounted by revaluation reserves of Rs 18.5 m, and security premium reserves of Rs 18.2 m. As stated earlier it has trade investments in subsidiaries to the tune of Rs 23.2 m against Rs 33.2 m previously. During the year it exited from one, Peirce Leslie Cashews and Coffee Ltd, in which it had a stake-holding of Rs 10 m, this company was liquidated. But against this here was a provision of Rs 10 m made earlier by Peirce Leslie. Of the balance investment of Rs 23.2 m it has provided for Rs 14.5 m in diminution in value. In the preceding year it had also written off all bad and doubtful debts of Rs 23.5 m against which there was a provision of a like amount. But the schedule detailing the operating costs also avers that the company has recovered Rs 2.9 m from its subsidiary companies in both the years. Presumably these recoveries were against these bad debt provisions. In which case why were all the doubtful debts written off in the accounts please?

Borrowings under control

But what is remarkable through all this rot is that the company literally has no borrowings. Debt at year end amounted to Rs 7.8 m against Rs 8.4 m previously. Of this sum, inter-corporate deposits amount to Rs 3 m! Now that is smart footwork! How does it manage its day to day affairs anyways? For one, it currently operates on a no profit, no loss basis, somehow. A revenue income stream of Rs 10.9 m was roughly matched by a revenue expenditure stream of a marginally lower amount. The income from services includes Service income of Rs 2 m and Commission of Rs 3.5 m. The income from Other Sources includes rent of Rs 3 m and dividend of Rs 2 m. Some of these incomes it would appear cannot be counted on, but the revenue expenses are unavoidable or some such. It may interest readers to know that out of the total expenditure of Rs 4.5 m on HR costs, the total payments to the CEO was to the extent of Rs 1.2 m. That is to say 27% of all expenditure on this account went into the upkeep of the top gun! Is this company a one man show or what?

The cash flow schedule reveals that the company was actually cash flow positive from operating activities to the extent of Rs 1.7 m during the year, vis-a-vis a positive cash flow of Rs 3.4 m previously. In both the years it resorted to tricks to ante up the cash flow from investing activities. In 2009-10 it generated cash by selling investments to the tune of Rs 2.2 m and by getting its sibling to fork out a dividend income of Rs 1 m. In 2010-11 it squeezed more money out of its subsidiary by getting it to declare a higher dividend of Rs 2 m. In this manner it took care of its capital expenditure requirements. If life in reality were only as simple as this!

Capital expenditure

What capital additions is this company up to anyway? In the last two accounting years it spent Rs 4.5 m on gross block addition. The moneys went into sprucing up its rambling bungalow in Fort Kochi into a boutique hotel. This hotel has been apparently given on lease to the Neemrana Group who will pay its tithes to the parent. It has yet to show up in its books though, and how much juice it will contribute to its cash flow is an unknown entity at this point in time. But suffice to add that since the capex was made out of internally generated funds, any income that the hotel brings in will add to the cash flow. It may not be out of place to mention here that the total value of its land and buildings currently add up to Rs 65 m, including the revaluation factor. The total revaluation figure in this amount adds up to Rs 18.5 m. The market value of these properties will be infinitely higher today that is for certain.

The subsidiaries

The company also boasts of a few half baked subsidiaries (as stated earlier) that seem to be on their own trip. Till last year end the company had five siblings, but by the latest year end the number had whittled down to four. The total book value of its investments in its siblings has consequently fallen to Rs 23.2 m from Rs 33.2 m previously. One company, Peirce Leslie Cashews & Coffee Ltd, was liquidated and the investment of Rs 10 m fell by the wayside. Why was this company allowed to flounder in the first place? The four remaining siblings, who individually appear to be in varied businesses given their name plates, collectively paid out a dividend of Rs 2.1 m. Or did they? The brief financials of the four siblings that the parent has appended along with its report does not offer any help in this matter, as the dividends if any that they may have paid out is not mentioned. (The parent has no other dividend related investments). In any event the only company which appears capable of paying any dividend is PL Agro Technologies Ltd which posted a post tax profit of Rs 13.7 m on revenues of Rs 265 m. This is also the only sibling in which the parent does not exercise a 100% holding. The promoter holding is restricted to 51.2%. Who owns the balance sizeable stake please? The other three holdings are merely of the fly in the ointment variety especially the travel portal which only has a name plate to its credit.

The vibes that one gets is very negative. It appears that the company is today being run with only one shareholder in mind. All the more unbecoming since the board of directors is being chaired by Mr P C D Nambiar, the former respected chairman of State Bank Of India (SBI). One wonders what meaningful advice this gentleman proffers to the company.

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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