Fairval

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Archive for the ‘Corporate Governance’ Category

What is SEBI doing about Elder Pharma?

Posted by fairval on October 11, 2015

This blog has written earlier about what appears to be a rather large scam afoot at Elder. In Jan’15 we wrote

What is cooking at Elder Pharma?

The basic premise was – Elder got over Rs 1700 crore post tax from slump sale of certain assets to Torrent. But it wrote off Rs 1100 crore of that. WTF? Just before that came out, independent directors started resigning. The CFO resigned soon.

And it is common knowledge that the company has been in a financial mess and has been defaulting.

Now, Mumbai Mirror reports that The Bombay High Court has cleared the prosecution of top Elder Pharmaceuticals Ltd bosses, including TV actor and chief operating officer Anuj Saxena and his brother and chief executive officer Alok Saxena, for the company’s failure to honour fixed deposits worth Rs 155 crore. Full story here —

Elder Pharma bosses face prosecution for not repaying deposits

This is good news. Finally, someone is going after the promoters. But, there are bigger issues ere:

  1. Just who is following up to check if large amounts of money were siphoned off? That is a separate criminal act
  2. What is SEBI doing?
  3. Should auditors etc, who signed the Rs 1000 crore+ write off, be prosecuted as well
  4. Several independent directors resigned. But did they report any of their suspicions to SEBI? Clearly, there was a reason why so many of them resign within a few days of each other

No major paper has followed up this story. So much for quality of journalism here.

Posted in Corporate Governance, Pharma and Lifesciences | Tagged: , , , , , | Leave a Comment »

What is cooking at Elder Pharma?

Posted by fairval on February 5, 2015

This blog has hinted earlier that something’s not quite right at Elder. Ever since the sale of part of domestic business to Torrent was announced in Dec’13, things have gone downhill at Elder.

Check the series of events:

30 June’14 – Transaction closure announced

30 June’14 – Independent director, Dr. Raghavachari Srinivasan resigns

1 Aug’14 – Independent director, Dr. J. S. Juneja resigns. He was also the non-executive chairman

11 Aug’14 – Independent director, Mr. Michael Bastian, resigns

1 Dec’14 – Independent director, Dr. Jayaram Subramanian, resigns

2 Dec’14 – New CFO appointed (old CFO left somewhere earlier, data not available)

8 Dec’14 – Company takes permission for AGM extension (financial year ends June)

11 Dec’14 – Independent director, Mr. Saleem Shervni, resigns

Why should it bother us?

Someone like SEBI or the stock exchanges like BSE or NSE should wake up and check why such wholesale exit of independent directors is going on, and why did the CFO leave.

All the more so, when the grapevine suggests that Elder is still in default of some outstanding debt, despite getting Rs 2000 crore (pre-tax) from Torrent. The company took a write off of over Rs 1100 crore from the money received from Torrent. Was this write off genuine, or should minority shareholders feel cheated?

Posted in Corporate Governance, Pharma and Lifesciences | Tagged: , , , , , | Leave a Comment »

Why investors hate slump sales: a glaring example

Posted by fairval on September 23, 2014

Investors on the Indian stock markets normally don’t like listed companies selling part of their business via slump sales. The belief is that minority shareholders will rarely get to see any of the money.

A recent case of slump sale seems to illustrate this perfectly. We are not naming the company here, but the details are largely accurate.

This company sold a part of its business for Rs 2000 crore in Jun’14. In the results which came out for June quarter, the exceptional income shown was only ~Rs 375 crore. So where did the rest of the money go? Check this math:

– They got ~Rs 1750 crore post tax from the slump sale
– But then, there is a write off of Rs 1000 crore on ‘Sale of Advances’
– and there is another write off of Rs 350 crore on account of Trade Receivables

There is a total of almost Rs 1350 crore of write off done here. This is more than the FY14 revenue of this company. Should we call this business as usual and ignore it? Or is it something minority shareholders should shout about?

Promoter holding in the company is only 25%. There is sizeable institutional holding.

Posted in Corporate Governance | Tagged: , , | 2 Comments »

IR consultant a cause of fall in CEBBCO price?

Posted by fairval on February 7, 2013

As they say; you should choose well who you sleep with. In CEBBCO’s case, the IR consultant or the management – one of them, must have thought about this in the last few days. It emerges the IR consultant may have been a key player in the share price fall.

Shares of Commercial Engineers and Body Builders (CEBBCO) have plunged dramatically in the last few days, down 50%. Given that the company financials appear to be healthy D/E<0.5, no shares pledged), this was surprising. A couple of broker reports in Nov/Dec etc had price targets > Rs 140, when share price was around Rs 100. Now the price is < Rs 50.

So what happened? Yesterday a story in The Economic Times gives some reasons. It says  the 20% fall on Friday was triggered by an HNI who sold to fund margins on another stock.In ET’s own words:

The fall created panic among other shareholders who sold huge quantities on Monday. India Max Investment Fund and Aditya Birla Finance sold 4.19 lakh shares and 3.25 lakh shares, respectively. The other big seller was Prashant Desai, a former employee of Seagull Value Consultancy, who offloaded 7.33 lakh shares. Meanwhile, India Max Investment Fund sold another 15 lakh shares on Tuesday.

Prashant must be the owner of Seagull, who reported has joined MCX to head its IR. But the size of his sale raises some questions (we dont know if the ET story is correct tho):

  • Why did he sell at this price, unless there is something shady in CEBBCO? He should know the company better than anyone, unless he was the HNI who reported was forced to sell to fund a margin call.
  • 7.3 lakh shares is close to Rs 4 crore at time he sold. We don’t know what price he bought. That is a large amount in one stock, unless your equity portfolio is something like 40-50 crore (>10% in one stock is rare, unless u are a true follower of Buffett)

Any which way, whatever has happened isn’t good for CEBBCO. Management has denied there is any financial issue at the company. Tata Capital, which owns 11% for a long time, has not sold. Tata Motors accounts for almost half of CEBBCO’s revenue, so Tata Capital being there is a comfort.

Posted in Corporate Governance | Tagged: , , , | 2 Comments »

Arvind Rao’s greek tragedy at Onmobile

Posted by fairval on August 3, 2012

Great article in Forbes India explaining what went wrong with Onmobile. Really tragic, since it all started with honest intentions..Rao borrowed money to buy his own stock, and got caught in a debt spiral.. (Great job, IG and team)

Why Arvind Rao and OnMobile went down a dark road

Excerpts..

On November 23, 2010, Arvind Rao, the 53-year-old co-founder and CEO of OnMobile, bought approximately 6 lakh shares of his company from the open market, representing a little over 1% of the company’s total shares. Rao already owned over 10% of the company’s shares. At Rs 277 a share, he had to pony up nearly Rs 16.5 crore to acquire them.

He went ahead and borrowed money to buy the shares, thinking nothing of the interest it entailed or the fact that he’d need to put up nearly half his existing shareholding as collateral. That would turn out to be the worst decision he ever made…

Posted in Corporate Governance, Technology | Tagged: , , , , | Leave a Comment »

Deccan Chr..IFCI files suit, alleges ‘thousands of crores’ of loans, ICICI sanctioned loan on June 18

Posted by fairval on July 30, 2012

IFCI it appears has filed a winding up suit last Friday. From a newsreport…Don’t know why IFCI is alleging ‘thousands of crores’ of loans

Deccan Chronicle Holdings Limited (DCHL) has liabilities running into thousands of crores of rupees that may lead to the erosion of the entire net worth of the company and make it commercially unviable and insolvent, Industrial Finance Corporation of India Ltd (IFCI) has said in the winding-up petition which it has filed in the high court against the Hyderabad-based company.

The petition was filed by IFCI on Friday after DCHL defaulted on redemption of 250 unsecured redeemable non-convertible debentures (NCDs) on June 26 this year and failed to pay up its dues of Rs 27,80,47,945 despite “repeated requests and demands”.

IFCI said DCHL had massive secured and unsecured debts running into thousands of crores of rupees with various banks, financial institutions, non-banking finance institutions etc. and feared that many more winding up petitions may be filed by other creditors as the company had defaulted on several liabilities.

Also,

ICICI Bank it seems sanctioned a Term Loan of Rs 350 crore on June 18th! Deccan may not have been able to draw down, otherwise, it could have paid the likes of IFCI.

Posted in Corporate Governance, Media and entertainment | Leave a Comment »

Deccan Chronicle mess: Satyam all over again

Posted by fairval on July 27, 2012

Just how exactly does a net cash positive company default? It came to light a few days ago that Deccan Chronicle had defaulted. The events have seemed to gather speed over the last 2 days. On Thursday, the company announced its MD had quit. The stock was down almost 20% today. In July, it has lost over 50%.

Till July’12, Deccan had a long term debt rating of AA from CARE. On July 2, CARE issued a release saying Deccan had missed a payment on an NCD.

If you see its last declared balance sheet (Sep’11), it has a debt of Rs 298 crore, and cash and bank balance of Rs 398 crore. In other words, its net debt is zero and it had a cash balance on the top of it. Even CARE’s statement says: As per the company’s submission, it had outstanding cash balance/ FD amounted to Rs.372 crore as on December 31, 2011 and gross cash accruals for the last quarter (1st January to 31st March 2012) of FY12 amounted to Rs.20 crore. Despite aforementioned liquidity, the company has defaulted on its debt obligations. The company has not offered any explanation regarding the same.

So why did it default?

The most like explanation is the numbers are fudged. And it is not that this was not known.

The auditor seems to be some local entity called C B Mouli & Associates, so not a Big 4 / 5. And the rating agency was CARE. Both did not seem to know.

But did anyone know about the fudge? Some did. As early as 2009 or so, a friend of mine who is the equities head of an MNC broker, had called me check his hypothesis on Deccan. He said his analysis showed Deccan was overstating sales of its new editions, for ex, the one in Chennai. He sought my help to check this (I was in Times group at the time). I did an internal check, and I got the same feedback – Deccan was fudging numbers. The sales numbers they were claiming for some editions were simply not possible.

With all this, it seems many others, including CARE, didn’t catch it. This appears to be a case like Satyam.

Posted in Corporate Governance, Media and entertainment, What was that Again? | 1 Comment »

Would Rajat Gupta have got this verdict in India?

Posted by fairval on June 17, 2012

Rajat Gupta clearly got what he deserved. That is is beauty of the US legal system, their business environment, and explains why the world still needs a strong US to show the way.

In India, this case would never have never come up. Despite our rampant insider trading, hardly anyone has ever got caught. SEBI has made some cases against both Reliance Groups, but lacks courage to do anything substantive.

What I am surprised to see is the stance Indian businessmen and media took in the run up to the verdict and even after it. Indian businessmen were coming in support of Rajat. Why? Perhaps they also do insider trading all the time, and dont quite see it as a big enough offence.

Will this scare wrong doers in India? Unlikely. Lets see if there is any serious conviction in the 2G scam in the next 5-10 years. Raja is roaming free, and getting treated like a hero by his party.

Posted in Corporate Governance | Leave a Comment »

Facebook versus A2Z Maintenance Services

Posted by fairval on May 30, 2012

Facebook’s IPO has drawn a lot of flak in the US, when it fell more than 15% or so within days of listing. A few class action suits has already been filed by the time the share price was around $32. The share price has fallen further, as of yesterday, the stock was down to $28, or over 30%.

Contrast this with the complete lack of action from either SEBI, any domestic fund or investors in an Indian IPO. No lack of examples where the share price drops dramatically after an IPO. And not just the share price, even the company performance.

A classic example is A2Z Maintenance & Eng Serices, a stock were Rakesh Jhujjhunwala had about 20% and was on the board of the company as on the IPO date. The IPO was in Dec’10 at a price of range of Rs 400-410. The company listed on 23 Dec’10 at a price of Rs 398, i.e, below the IPO price. It has never once touched the IPO price since. Rs 398 remains the all-time-high price. On 10 May 2012, earlier in the month, it made its all-time-low of Rs 83.7.

The IPO had six bankers, all the big names  – Enam, BofA Merrill, ICICI Sec, SBI Caps, IDFC, Yes Bank.

And it is  not just about the share price. What the SEBI, or ICAI, should probe, is the quality of the company’s financials. It is known fact that most Indian companies fudge their financials in the IPO year. SEBI needs curb this practice.

A2Z could have done the same. Since post listing, its profits and margins seem to have dropped precipitously. Standalone PAT has dropped from Rs 94 crore in FY10 to Rs 19 crore in FY12.So did it show artificial profits pre-IPO?

Rakesh Jhujhunwala, though, has remained invested. He bought another 3-4% from the open market earlier in the month. Must be still on the board as well.

Posted in Corporate Governance, IPO, Markets | 1 Comment »

Coal tangle worsens – Now coal secy issues idiotic statement

Posted by fairval on April 3, 2012

Every other day the government seems to regress back to the ’80s. Witness these statements by the Coal Secy who is on the board of Coal India..

Coal Secy Ashok Perti said their first loyalty of independent directors should be towards the company and not its minority shareholders.

So will the government look to replace them or take any action against them? Perti said no such action was being planned against these directors. And top coal ministry sources added that any such decision—taking action against independent directors—would involve a very lengthy process which the ministry perhaps wants to avoid.

This is bizarre. Independent directors are there to protect minority shareholders, and here is the coal secy saying something totally differnt. And it seems, all independent directors had opposed the new coal FSAs

Posted in Corporate Governance, What was that Again? | Leave a Comment »