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September 14, 2015

Olympia Industries Ltd : Annual Report and preferential allotment update.

As you know I have already invested in Olympia Industries ltd and I have covered that here 

Annual report of Olympia Industries Ltd is now available on BSE website . Recently they had announced "Subject to the approval of members of the Company and appropriate authorities, the Board has decided to issue and allot 30,00,000 Convertible Warrants of Rs. 10/- each to Promoters and strategic investors on preferential basis pursuant to Section 62 of the Companies Act, 2013 and SEBI (Issue of Capital and Disclosure Requirement) Regulation, 2009. "

I was very much impressed with this announcement and I had given thumps up to promoter for showing courage in falling stock price to allot convertible warrants . I was calculating price by the following formula which was giving price more than 180.

Pricing of equity shares.
76. (1) If the equity shares of the issuer have been listed on a recognised stock exchange for a period of six months or more as on the relevant date, the equity shares shall be allotted at a price not less than higher of the following:
(a) The average of the weekly high and low of the closing prices of the related equity shares quoted on the recognised stock exchange during the six months preceding the relevant date; or
(b) The average of the weekly high and low of the closing prices of the related equity shares.

But when I saw annual report I just return to reality from a daydream . There is one more addendum to above rule for case of infrequently traded shares where total volume for last one year is less than 10% shares of total paid up capital of the Company .

Pricing of equity shares of infrequently traded shares:.
The price determined by the issuer shall take into account valuation parameters including book value,comparable trading multiples, and such other parameters as are customary for valuation of shares of
such companies:

Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent merchant banker or an independent chartered accountant in practice having a minimum experience of ten years, to the stock exchange where the equity shares of the issuer are listed .

So , annual report has special resolution no. 11 as per that

I don't say it is illegal to issue preferential Convertible Warrants at 45 when market price was more than 150 but surely as minority investors I am not feeling comfortable with management . Recently , one of the micro finance company Satin Creditcare (listed on NSE SME platform) raised 51 cr on preferential allotment from SBI cap where min price as per formula was around 105 but they have decided pricing as 130. This is not only one example of higher than min price, there are many .This is the world of small micro cap stocks you can't do much .  I can do voting against this resolution item no. 11 but as minority investors I can not achieve much . So , I will have to think 360 degree and vote. Not decided yet.  If this resolution get passed and all warrants get converted then I may feel betrayed as minority investor because I got this share cheaply but they will get dirty cheap but there are couple of positive things will emerged in this counter due to this.
1. It will more closer to get out from P group , It will be just 2 lakhs demat shares away from getting 50% public shares in demat format .Once , it get out from P group there will be more buyers.
2. Promoter shareholding will increase from 60 to around 72 % . That will show confidence of promoter in this company and lot investors this is one of the parameters to enter in this type stock . I am still sure this company will create lot of wealth specially for promoters . And If they learn consider minority shareholders as equal partner then It will create lot of wealth for us as well. keep watching .
3. They are injecting new young blood in promoter group which can understand current world of e-commerce properly and can bring some innovative ideas .
4. They are allotting warrants to Paresh Baghat of mangal keshav Securitues  and Meenakshi Kanoongo. I have not done much research on them but Paresh Baghat looks like stock picker . You can read one of his a interview . I believe they are are here not just because of short term gain play by getting allocation at dirt cheap rate and sell on conversion and vanish. I hope if they are not fly by night operators then they can also bring some investors along with this . Keep watching them as well .

Another point that bothering me how they can avoid Open Offer on conversion warrants into equity share since they can't increase more that 5% in a year without open offers to other shareholders .
There are some exception like CDR cases but not sure If they got such exception , they will have to clarify else you need to drop a email to them if existing shareholder .
To be frank, I didn't like their corporate governance practice even though we don't expect much from small companies . They have not communicated on the following points to exchange announcement board.

1. Whatever information they have given in annual report that should have been communicated to exchanges . So , far they have not announced investors details and quantity to exchanges . They should have done it with all details including their PAN number .
2. How these 2 new non promoters are strategically fit for company . I am not convince .
3. Soft copy of valuation of Rs 45 should be submitted to exchanges . I am not convince . May be after seeing it I can get convinced .
4. I have not received Annual Report on my email account of demat account yet (14 Sep) when annual meeting is on 27 th Sep .

Olympia Industries Ltd is now new economy e-commerce stock and the person who still valued all the companies on old parameters, we can not get right valuations from him. We need check how valuation of Rs45 (mcap 15 ) came . Do you know initially just dial was valued at 15-20 lakhs by their own CA during first round of funding? . Read this article 

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