January 11, 2019

Private and Confidential

Dear Investors,

Our investment in LEEL has witnessed a significant capital erosion and I admit that in hindsight it looks
a mistake. My assumption that siphoning off in a changing regulatory environment would be difficult
appears faulty. LEEL share price is nearly 80% low from the cost in most of the accounts. While we
cannot rule out a possibility of eventual recovery in the share price, the damage has already been
done. Rare but costly misjudgements like LEEL resulting in permanent loss of capital are humbling and
thought provoking for us in our pursuit to create wealth for our investors through long term value
investing. Such flawed investments though big enough to be a drag on our investment journey, I am
confident, would not deter us from creating wealth going forward.

We had invested in LEEL looking at the following major considerations:

• Company had received Rs. 1550 Cr cash from sale of Consumer Durable (CD) division to Havells
and was trading at Rs. 1000 Cr market cap (Now Rs 200 Cr).
• Company had a good long-term operating track record in air conditioning and white goods
space, having successfully created and divested the "Lloyd" brand of appliances.
• Company had just sold the brand "Lloyd" along with associated intangible assets and had
retained the operating assets including 8 manufacturing facilities in India and abroad and was
set to continue its business of being an OEM supplier to other major manufacturers.
• Post reforms like GST and demonetisation, corporate governance standards, law enforcement
and business culture in India was improving and it was getting tougher to siphon off from
public listed companies. Also subsequent to the Companies Act 2013, and various SEBI
initiatives, the minority shareholder rights were getting stronger. Under these circumstances
the likelihood of LEEL promoters siphoning off the cash received from sale of CD division was
low.
• Given the opportunities that the space in which LEEL operates and being cash rich, the most
logical path for the promoters who have been in the business for around 3 decades, would
have been to take the company to higher orbits and thereby creating wealth for all the
stakeholders involved.

We had accumulated nearly 5.4% of company by October 2017. The company reported Rs. 946.43 Cr
profit from sale of CD division in 2Q18 results in November 2017, in line with our investment thesis.
3Q18 results published in February 2018 also confirmed the same Rs. 946.43 Cr profit figure and we
continued to buy LEEL. By end of February 2018, we held nearly 8% of company’s equity.

Meanwhile, in December 2017, the promoter of the company Mr. Brij Raj Punj passed away and his
son, Mr. Bharat Punj took over the reins of the company. Throughout our interactions with Mr. Bharat
Punj and other senior management in various occasions, they sounded optimistic about the business
and future of the company, in line with our investment rationale.

Strictly private and confidential. This communication is exclusively for our clients’ information.

www.equityintelligence.com | A Tradition of Value Investing

On 30th May 2018, to the shock of entire minority shareholders, including us, the company arbitrarily
wrote back the profit from sale of CD division in FY18 annual results to Rs. 663 Cr, triggering a selloff in
the stock. Company also diverted nearly Rs. 340 Cr to promoter entities including the listed debt laden
entity Fedders Electric Ltd. as capex and loans for buying land and factories of their own plants. The
stock fell from Rs. 215 to Rs 127 in 5 days and the liquidity in the counter dried up.

Taken aback by such an unexpected development in the company, we reached out to the management
for clarification, seeking more transparency and motivating them to share wealth with minority
shareholders. Given the value in company’s operations and assets, illiquidity in the counter, our
significant holding and hoping for a better exit eventually, we continued to hold the stock.

However, despite our best efforts to engage the management, they declined to share more details
including the reconciliation of CD division sales proceeds and refused to reverse the malicious related
party transactions. Losing hope on the management after months long attempt, we decided to take up
the issue with the authorities and engaged a leading corporate law firm in Mumbai to explore various
legal remedies available and subsequently filed a complaint with SEBI - seeking a forensic audit of
books of accounts of LEEL Electricals, without which the suspected fraudulent actions of the promoters
and senior management to siphon off company’s wealth for personal enrichment cannot be proven
legally.

We are hopeful that given the circumstantial evidences of fraud involved, the regulator would act
judiciously, protecting interests of the entire minority shareholding community of the company, and
set an exemplary precedent in the corporate governance history of Indian listed companies and
empower the minority shareholder community to raise their voices against lapses and criminal
negligence committed by promoters, and thereby raise the overall bar for corporate governance
standards in India.

In the two months after our complaint with SEBI, there has been several high levels exits from the
company including many from senior management like the group CFO, Company Secretary and VP
Finance, Operations Director etc. The auditors of the company in 2Q19 results review report have
asked the company management to review the receivables shown in the books. The impact of these
events or of the regulatory action, if any, cannot be predicted.

While we cannot rule out a possibility of eventual recovery in the share price, as on date the damage
has already been done. Value of LEEL, in most of the accounts have fallen below 3% of the account
NAV. Attempting to liquidate the investment at a time without liquidity in the counter will only lower
the realisable value and this would not make any material positive impact to NAVs. Let me repeat -
such flawed investments though big enough to be a drag on our investment journey, I am confident,
would not deter us from creating wealth going forward.

Best regards,

Porinju Veliyath
Portfolio Manager

Strictly private and confidential. This communication is exclusively for our clients’ information.

www.equityintelligence.com | A Tradition of Value Investing