First, things first….mr. garg was very candid in this interaction and would therefore, rather than giving an account of the entire transcript, I am giving a point by point rebuttal of most common questions that myself and other investors had raised.
1. Why was the performance of the company so bad till now?
a. Mr. garg has had various business interests ranging from retail to jewellery in the US. Till 2009 is was not actively involved in cupid and was dependent on an external candidate to run the company and obviously, inspite of mr. garg spending around 15cr of his own “personal” money there was no output. Finally, in 2009 my garg decided to take the matters in his own hands and that’s when the recover plan was put into place and practice.
2. Why is his personal stake pledged at 75%?
a. In 2009 when he started getting involved in the company, the fiscal health of the company was really bad, and company needed some debt, which noone was ready to provide. At that time ING asked for personal guarantee for debt, and Mr garg being an NRI, had no option but to pledge his personal stake. Cupid, is now cash surplus and therefore, in next 2-3 quarters the pledge could be released.
3. Why did promoters sell their stake?
a. The person in question needed some cash urgently and selling shares provided the quickest liquidity. Mr garg, re-iterated that there were no malafide intentions behind it as the stocks were sold in their mid 30s and if there was anything malafide, they would have sold it at the best rate. Also, Mr garg admitted that it may have been a bad decision considering he was not aware that stock market sentiments can be hurt by such actions (he says he’s never traded any share ever and for all this he’s dependent on external advisors). He told me that promoter stake would be held up at this level without any selling. He also admitted that he was unaware of inner stock markets working and was deeply hurt by the conclusions being made by investors on promoter’s intentions on mere hasty but innocent decision of few thousand share sale. I explained him in detail, rationally, why this selling was being questions by investors.
4. What is Safeware & Co.?
a. Safeware is a stealth mode startup company (and therefore, no trace of company on web) registered in Naples florida. This company is started by four well known business guys (one of them is pure investor though) having very strong distribution channels. Safeware, zeroed in on Cupid after surveying a lot of companies in Malaysia, China and Thiland, but was introduced to Cupid, by a cupid’s existing customer (and Safeware’s friend). The company is for real and Mr. garg assured that he’s ready to face any legal action if otherwise. Also, he has requested US based investors to personally check the registration in case of any doubt. The export order is going to have a great annuity for cupid and could significantly add to the order book. Though, the effect would be visible from next FY and not much from this FY. By the way the agreement is already in place and Safeware, is expected to pay a visit in Jan 15 to Nashik plant again. I have got the details verified, but would expect, the shareholders to do it as well so that they can sleep tight .
5. What’s in store for Shareholders?
a. The company expects to perform very well in coming year, and for this year, company should exceed its first 6 months performance. Also, now that company is cash sulplrus Mr garg, is of the view that the shareholders would be rewarded (and we all know what it indicates). He also explained me his line of thinking that if there’s no capex and debt, excess cash should go back in the hand of shareholders. Enthused by its own performance, cupid is now actively researching on another product line – Lubricants (which again is very lucrative).
There was a lot of discussion but it would become a 10 page essay. From the meeting it was clear the Mr. Garg, needs some better guidance on how stock market operates and especially what hurts the market sentiments. I also asked him to get better CAs and now CS as well. Earlier, the company was in oblivion and noone was interested and therefore, their ignorance of the markets was not questioned, but not now. I explained him in detail how promoter selling hampered the sentiments. I told him first safeware news came, then promoters sold, coupled with no “web” trace of Safeware, and the history of company few years back, raised eye brows and there were accusations of some possible fraud. This visibly “hurt” mr garg has he took pains in explaining that the Cupid is genuine, Safeware is also genuine (he told me names of safeware founders and have verified it on linkedin) and admitted that it was clear that promoters treating their own shareholding as their personal measure of liquidity was a big blunder (although he said he had asked his advisors before selling) as was evident from numerous mails and calls they have received over this matter and assured it should not be repeated again (though IMHO selling a few thousand shares is never a problem). He also accepted my advice of getting better advisors for himself, especially who knew the street well and what affected the street as well. Mr, garg is a well to do businessman and given the fiscal health of the company he was not taking any salary so far, but given the cash condition, from this/next quarter he might start accepting the salary. Cupid, is extremely excited about future right now. The company has a very healthy order inflow and are now in a position to say no to low margin orders, something that was unthinkable a few years back. Also, the company has started paying full income tax and would think of rewarding the shareholders soon.
I came out of the interview with a very positive frame of mind especially w.r.t safeware and company’s genuineness.