Saurabh Mukherjea's PMS exits Sterling Tools over accounting standards

Marcellus Investment Managers on Friday said that it has completely sold Sterling Tools due to the deterioration of accounting standards in the company. The company, which is engaged in manufacturing and marketing of high tensile cold forged fasteners, was part of Little Champs Portfolio which holds about 15-20 sector-leading franchises with a stellar track record of capital allocation, clean accounts and corporate governance with high growth potential.

Shares of Sterling Tools have gained 64% to Rs 207 since the lows of March 2020, while the benchmark NSE Nifty index has gained around 100% during the same period. Investor Saurabh Mukherea-led PMS firm said that the key reason for exiting from Sterling Tools is deterioration in its accounting score under Marcellus’ proprietary forensic accounting model. Some of the factors included growth in auditor’s remuneration relative to the revenues, contingent liabilities as a percentage of net worth, miscellaneous expenses as a percentage of total revenues and yield on cash and cash equivalents.

Little Champ portfolio has delivered an annualised return of 48.3% since its inception in August 2019, which is in tandem with the BSE Smallcap index. However, the portfolio has underperformed the index in the past year. Where the BSE Smallcap index gained 105.40% between July 2020-2021, Little Champs advanced 79.4% during the same period.

Despite all the odds, the Little Champs portfolio companies have delivered weighted average revenues and profit CAGR of 11% and 20% respectively over FY16-21 against the backdrop of relatively muted revenue or earnings growth seen across the broader Indian corporate landscape. “Thus, Little Champs seem to have defied the growth challenges of their niche industries,” Marcellus Investment Managers said.