Saurabh Mukherjea’s PMS exits this smallcap raising red flags over accounting

NEW DELHI: Marcellus Investment Managers, founded and run by Saurabh Mukherjea, said it has exited Sterling Tools completely, citing degradation of accounting standards at the company.

The market currently values the auto parts company at around Rs 750 crore. It was part of Marcellus’ Little Champs portfolio, which invests primarily in 15-20 high growth smallcap stocks.

"The key reason for out exit from Sterling Tools is deterioration in its accounting score under the Marcellus’ proprietary forensic accounting model, triggered by below-par scores on the following ratios: (i) growth in auditor’s remuneration relative to revenues; (ii) contingent liabilities as a percentage of net worth; (iii) miscellaneous expenses as a percentage of total revenues; and (iv) yield on cash and cash equivalents," Marcellus said.

Sterling Tools in mid June reported March quarter profit at Rs 9.60 crore, which was slightly higher than Rs 8.17 crore reported for the corresponding quarter last year. Revenue from operations increased from Rs 85.82 crore to Rs 126.41 crore.

Atul Aggarwal, the company's CFO, also resigned from his post. The company did not announce the reason for his resignation. He was promptly replaced by a new hand, Pankaj Gupta. The company also re-appointed SR Dinodia & Company and ASA & Associates LLP as internal auditors for the financial year 2022.

As per March quarter shareholding data, Seema Goel, wife of value investor Anil Kumar Goel, holds 1.39 per cent in the company. June quarter shareholding data is not available yet. On Friday, shares of Sterling Tools were up 2.46 per cent at Rs 212.25. It has returned 15 per cent in last one year, but is down 39 per cent for the last three years.