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Sunil Shah
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A fund manager who cut his cloth in Schroders London. He joined Coronation South Africa in 1998, running the Smaller Companies Fund which had the best 5-yr record in the sector during his tenure. In 2005 he left Coronation to pursue his passion in writing (and invest without constraints). He... More
My blog:
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  • rumour mongering on EBIX 0 comments
    Nov 9, 2011 2:20 PM | about stocks: EBIX
    One very important point raised by rumour mongerers:
    See  highly misleading article by 'Copperfield Research' on Seeking Alpha  
    http://seekingalpha.com/article/259998-ebix-not-a-chinese-fraud-but-a-house-of-cards-nonetheless-part-i 

    There has been major confusion on the Indian Subsidiary Revenue and profit, namely the discrepancy between SEC filings and filings with Indian Accounting Board.

    One concern has been revenue being stated lower than operating profit, obviously impossible on first examination.

    This is fully explained in their annual results, in essence the problem is resolved on the intercompany consolidation, See Investor Relations Comment on this point:


    EBIX IR: It has already been explained in our press release dated July 18th 2011. The press release states - “The Company’s regional revenues reported in Note 16 in the Notes to Our Consolidated Financial Statement in the Form 10-K for 2010 are entirely within the guidelines defined in FASB for GAAP reporting. Company’s GAAP revenues reported in our consolidated books are based on revenues billed to end customers only whereas individual foreign subsidiary companies (who are manufacturers or owners of intellectual property) locally report both customer revenues and revenues invoiced to a sister company. The income of each of the manufacturer companies in foreign locations is a function of both these revenue sources and thus has no correlation with the reported revenues for these foreign location-manufacturing companies, in the consolidated books.”
    Basically the press release clarifies that the sum total of revenue of individual foreign subsidiaries is a lot higher than mentioned in the consolidated foreign revenues since intercompany revenues are removed from the consolidated foreign revenues. Intercompany revenues becomes revenue in one subsidiary but an expense in the US and is thus eliminated in the consolidated books. This is how GAAP accounting mandates it. Income in each of these foreign subsidiaries is a function of this higher revenue and has no co-relationship with the lower consolidated revenue reported.

    India requires all businesses to publicly file financial results with the government. According to those filings, the company's two Indian subsidiaries reported about $38 million in revenue from other Ebix units in 2010 (although the U.S. parent's 10-K shows net revenue in India of zero). 

    (Me: these numbers make perfect sense on inter company consolidation. I am a chartered accountant and do speak an auditor’s language.
    )

    Misleading article in Barrons: Cash transactions with the India unit didn't seem to follow those $38 million in reported revenues very closely. At the end of 2010, outstanding receivables from the rest of Ebix amounted to almost a year's worth of the Indian units' sales–a pretty high level of days' sales outstanding. At one point in 2010, in fact, receivables due from the U.S. parent ballooned to almost three years' worth of one Indian subsidiary's sales.
     
    Ebix IR: Ebix US has never delayed any payments to its subsidiaries. At the end of 2010, US owned India 90 days of debt balance. India billed all subsidiaries not only the US.

    (Me: this problem and misleading conclusion arises because Barrons took the Indian subsidiary accounts and compared them to the consolidated accounts where inter-company figures are eliminated. Get it?  This was the essence of the highly misleading article by 'Copperfield Research' on Seeking Alpha http://seekingalpha.com/article/259998-ebix-not-a-chinese-fraud-but-a-house-of-cards-nonetheless-part-i



    To repeat, I’m sticking with Ebix, despite the massive bear vested interest and incredible rumour mongering.
    Disc: Very Long EBIX




    Stocks: EBIX
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