A WEEK WHEN MILK SPILLED

The recent scams in the gems & jewellery and the banking world did quash a few popular sayings that stood for credibility, earlier. Out went “Safe as Banks,” “Gem of a Person,” and “Gold Standard” after Nirav Modi & Co took with them the terms Safe, Gem & Standard along with the many billions of Rupees.

Just the way stock market money seeks safe haven in the FMCG space during uncertainty, all the Honest-To-God patrons too, sought safety in the pristine dairy term - Doodh ka dhula (washed pure, with milk).  However, last week saw some events that put this term to risk too. The happenings in the Milky-Way suggest that some of the dairy doyens themselves may not be “dhula hua” with “doodh” after-all. Two instances caused some churn in our glass of milk.

First, the share price of Kwality Ltd (not to be confused with Kwality Walls Ice Cream that’s owned by Hindustan Unilever) tumbled 28% last week, extending its 2018 loss to 48%. 2 consecutive lower circuit hits on the stock caught the shareholders in, yet another tizzy.

Kwality Ltd promptly joined us on CNBC-TV18 and stated:

-          Appears Negative forces At Play Impacting the Stock Price

-          Nothing Fundamentally Wrong With the Company

-          Investigating the activity of these negative forces

-          None of the pledged shares are being sold in the market

For those familiar/invested in this stock, it was painfully reminiscent of what took place last September. In the first four days of September 2017, Kwality Ltd lost a quarter of its market capitalization in quick succession. Similar statements were made by the company then as well with no further disclosures.

However, this time, the company did go ahead and inform the exchanges. Kwality Ltd, in a notice to the BSE & NSE said they’ve received communication from Mr. Sidhant Gupta (an investor) who alleges that his broker, F6 Finserve Private Limited, has fraudulently sold some of his shares in the company and is now absconding. Mr Gupta has initiated legal & police action against the aforementioned too.

While, this disclosure is an attempt to explain the sudden decline in the company’s stock price, there is definitely more that needs some answering. Between December 2016 and December 2017, Kwality’s promoter stake has reduced from 64.24% to 63.94% and the pledge on promoters’ stake has increased from 44.07% to 61.91%. The current decline in stock price increases the risk of these pledged shares being sold in the open market. What also needs to be known is what proportion of Mr. Gupta’s holding was sold in the market by the said broker. This may give an indication of how much more remains. For the record, Mr. Gupta held 1.35% stake in Kwality as of December 2017, down from 2.18% in June 2017.

             

I will be watching what happens next very closely to test the quality of Kwality’s performance. If the share price is any indication of the street’s verdict on the company’s commentary and actions, Kwality Ltd has lost 61% since start of September 2017 till date.

The second big event was, for the lack of a better term, utterly-butterly surprising. A scam of Rs. 450 Cr discovered in our most beloved brand Amul. Turns out, the company had allegedly purchased cheese at higher price from a dairy in Kerala.  Amul has immediately swung into action and the board has called for an emergency meeting and heads have rolled as MD K Rathnam resigns. However, this does come as a shock to everyone because Amul was considered “Shuddh” (pure). Amul was definitely last bastion of Trust, Purity and All Things Good. Turns out, may be, this is, “The Real Taste of India”

No matter what the outcomes of these stray incidents are (and I do sincerely hope they’re just stray incidents), the prospects for Indian Dairy are very promising. We have a burgeoning nutrition-seeking vegetarian population, increasing shift from unorganized produce to branded milk and an insatiable appetite for value added products like Butter, Cheese, Lassi, Flavored & Fortified Milk etc. Let’s hope all the companies continue to focus on the best interest of the consumer and prevent their bright prospects from curdling before the glass is even half-full.

PS – I’ll be watching Amul’s next few ads very closely. Let’s see if they can use their famous wit to win back the love of customers.

Much Love.

M

PPS:

Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

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