A stock market investor can only do so much of research. Even after the most comprehensive research, he or she still remains an outsider whose fate is determined by what other investors think about the company, and the company’s performance, the combined impact of which get reflected in the stock price. Investors have no control on either but the least they expect is that the management makes an honest effort to run the company and share the rewards of that effort with the shareholders. When Amit Arora, a portfolio manager, invested in a Photoquip Ltd http://www.bseindia.com/stock-share-price/photoquip-india-ltd/photoqup/526588/
, listed on BSE, this is what he too hoped. But several years later he is a bitter man.
Arora, chief investment officer (CIO) of Eleven Dimension Funds, had bought Photoquip at around Rs40-50 in 2011, held it for four years, and was forced to sell is at a loss. Currently, it trades at Rs15. He calls Photoquip is like a “sports utility vehicle (SUV) that is unsafe to drive at any speed. It is dangerous to buy it at any price even at Re1.”
The Photoquip saga is one of deception and lies, according to Arora, a successful value investor, who lives in New Zealand.
Photoquip makes equipment for Elinchrom Ltd http://elinchrom.com/
, a Swiss company and manufacturer flash equipment and light shaping tools for professional photographers. The Swiss Company has leading market share in studio lighting for professional photographers. The reasons Arora bought Photoquip and how he thinks he was fooled are very interesting.
He says his methods did not lack any research ability or scuttlebutt. “In fact, there is no industry analyst who may have done as much research as I did on one single idea, Photoquip, I am certain of that. I focussed research on this single investment for six – twelve months at an average of three to four hours a day. In fact, even Photoquip would not know about global studio equipment market as much as I do.”
According to Arora, he did an in depth research on Elinchrom http://elinchrom.com/
for which Photoquip made equipment in India and also sold Elinchrom products in India. He researched Elinchrom’s expansion plans, whether they would open in China or not or whether their expansion will effect Photoquip. He also studied market shares of leading global brands, globally and in India and found that Elinchrom had about 80% market share even today.
Arora, who invests in high quality growth companies in Asia and Africa, even did research into the family background and wealth of Photoquip promoters, the Soni family. From the information available in public domain, he found the Soni family had children studying in the US and also several past failed ventures into instant camera and printing.
After sending people to trade fairs and exhibitions, Arora found that Elinchrom equipment was selling like hot cakes. He then joined professional photography discussion forums and studied their comments for many months. “In fact I could have done a diploma requiring 12 months of study easily, given the amount of time I spent research Photoquip. I learnt about top global brands being Profoto, Elinchrom and Broncolor. All European,” he says.
Not only this, Arora even randomly interviewed wedding photographers and published these interviews on his blog. He says, “People would contact me and say, hey that was my wedding photographer and friend. I wrote over 20 blog posts on this single idea; never since or never again am I likely to do this again. I was confident that for over 30 years Photoquip has relationship with Elinchrom and it will continue into next generation too.”
“In short, I got major thumbs up for a 10x PE idea. I thought this will provide me with a 50 bagger or more, and guess what I was right, absolutely bang on right. Except for the fact that promoter’s greed got the better of them and they decided to take all the money from minority shareholders and chose to not share anything with them,” Arora says.
He says, “The company continues to show losses for a brand that has 80% market share in India and leading share globally, despite selling its product in oversold trade fairs.” According to Arora, there is one evidence in public domain and BSE website about the promoter deals, especially about selling of Corvi, a general lighting division of Photoquip. “I was so bullish after they set up new company into LED lighting because they were much ahead of the game than biggies. Their design was very aesthetic like iPod, iPhone for LED lighting. In 2013, I increased my stake in Photoquip after browsing through www.corvi.com. This this website has changed quite a lot now. The older version of Corvi portal can be seen through web archives
“However,” Arora says, “in 2016, a series of sad events started to transpire. Photoquip owned Corvi trademark as it had funded the company. Photoquip signed an agreement to sell Corvi LED Pvt Ltd along with intellectual property rights (IPR). First, Photoquip sold the stake to another India company (perhaps Surya Roshni or TBC) and recently to Munjals of Hero. Imagine that!”
According to Arora, Photoquip, the listed entity, is worth just Rs7 crore and yet the Munjals of Hero acquired stake in Corvi for Rs64 crore
. He questions the valuation and believes that Corvi was worth several hundred crores.
In its annual report, Photoquip stated, "During the year under review, your Company earned an income of Rs62.45 crore as against Rs101.52 crore in the previous year, a decrease of 38.48% as compared to the previous year primarily on account of discontinuance of LED division and decrease in exports turnover during FY2015-16."
Arora says, “While the owners of Photoquip earned in crores, minority shareholders lost money. I believe that Munjal's of Hero and owners of Elinchrom (mother of Photoquip proverbially) are in the dark about the acts of Photoquip promoters.” For the quarter to end-June 2017, promoters and promoter group held 53.99% stake in Photoquip, with public holding the rest.
“Lesson for my fellow investors is, to repeat the quote from legend, ‘if the management does not have integrity, then their intelligence and energy will kill you’. I would be thrilled if this message can reach a wider audience and this company and its promoters can be added to investors red flag bucket,” Arora concluded.
Moneylife sent emails to Photoquip management, which remained unanswered till writing this report. We will update this story with their response as and when we receive it.
Photoquip ended Tuesday 9.33% higher at Rs16.4 on the BSE, while the 30-share Sensex closed the day marginally higher at 31,291.