Stripping or Stealing the Listed Company of Assets ! ~ How Promoters are suspected to do it and Auditors suspected to allow it !

You’ve heard of Naked Speculation ! but have you heard of Naked Companies that have been rendered so because they were stripped off their Assets by their Own Promoters  !!!?

Have always known how Indian Corporates ,even some of the well known names, indulge in siphoning off funds and stripping and stealing assets of the companies they have promoted or taken over !

In fact this reality is well captured in the tagline for my blog  ” In India,Companies may fall sick but Promoters rarely do !”  

But this one takes the Cake !  ~ the Kolkata based Listed Company Vikash Metal & Power ~ Business Standard highlighted this in it’s edition yesterday ~The great Indian listed firm robbery

Vikash Metal & Power says on April 12,2012, it lost a building and other stuff worth Rs 90 cr to an “incident of robbery” and auditors have simply remarked that the Fixed Asset Registers were not shown to them  rather than raising deeper questions on this ! ~ the thieves also took away the registers where the company had recorded the details of its fixed assets ! ~ Wow ! ~ and I checked it was a Thursday ! when this ‘Immovable Property’ was ‘Moved ‘!

The Company has been promoted by the Patni Family ~Father Vimal Kumar Patni and sons Vikash Patni and Akash Patni.Their stake has dropped from 59% to just 15.06% as at December 31,2012 ~ all pledged.

The Share Price of the FV Rs 10 shares is just 54 paisa !

The Patni family was also the Promoter of another  listed firm, Impex Ferro Tech. In fact Vikash Metal & Power was shown as part of the Impex Group.Till December 31,2011 the Promoters Group shows these Patnis ~ but no longer so from then ~ The Share Price of Impex is Rs Rs 3.54 for a FV Rs 10 share

Clearly this has the making  of a massive Fraud here ! ~ Stealing with a Legal Tag !? ~ that’s the Substance over Form !

Some other ways of suspected siphoning of Funds or Assets from the Company are as below with links to Company  illustrations which I had extensively blogged on recently

  1. Writing off Fixed Assets as Impaired and Value not Recoverable ~ Goldstone Infratech  May 22nd, 2013
  2. Writing off Inventories stating it was a correction in erroneous valuation earlier  and reducing  Debtors outstandings  as being overstated as found out in a reconciliation and not found to be realisable !  ~Bhoruka Aluminium June 8th, 2013
  3. Using the Free Cash for Investments in Group Companies or extending Loans & Advances to Them ~Geodesic March 27,2013
  4. Inflating Project Costs & Expenses ~Reliance Industries  October 3rd, 2012

Shortly I shall also reveal, with clear financial evidence how the Promoter & Top Management lied and mislead, what I strongly suspect how the Vedanta Sterlite Group took the Minority Shareholders of Sesa Goa for a ride by Investing over Rs 12000 crs of Sesa Goa’s Free Cash in Cairn India stating it would be immediately EPS accretive ! ~ it has just received Madras High Court Approval to merge Sterlite into Sesa Goa now to make it Sesa Sterlite !

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Reliance Industries at Rs 1055….”The Best Years Lie Ahead” says Mukesh Ambani…how does it stack up against Global Giants?

Switched on my mobile this morning after a few days of tackling a tough Viral…thank you guys for all your “get well” wishes…they worked

Listened to the live broadcast on stock channels of Mukesh Ambani at the 36th AGM of RIL this morning in Mumbai rolled out the roadmap ahead for his Group…this are a few interesting bytes that really caught my ear

  • Now with the rescinding of the Non Compete Agreement with brother,Anil Ambani’s (ADA) Group, Mukesh Ambani’s RIL Group will enter the Power Industry in a very big way…a blueprint is being prepared….what is amusing however is that despite discovering and drilling Gas from the KG Basin,RIL will not execute any gas based project till 2022…so it’s going to be coal based,hydel,nuclear and alternative energies projects….ironically it is supplying this Gas to Other Fertiliser and Power Plants as directed by the Government…even to ADA Group Power Plants when they are ready to accept and if the Government directs then
  • Organised Retail has earned Revenues of Rs 4500 crs in 2009/10….in just Five Years it will jump ten fold to Rs 45000 crs !…..keeping in mind that RIL is the first Indian Company to cross Rs 200000 crs turnover this year,this would be a great contributor 

Anything BIG to earn and HIGH growth rates forecast,then rely on RIL to enter that sector….Petrochemicals,Petroleum,Retail,Infrastructure….nowTelecom,Pharma,Healthcare,Power,Education.

What next ?

How about Information Technology …RIL can take a look at the three World Tech Giants,Google,Apple and Microsoft……have a look at this Comparative Table I’ve prepared…RIL against Peers and these three Tech Giants…I’ve used todays ref rate US $ =Rs 46.14 for translating RIL’s Share Price of Rs 1055 and Market Cap of Rs 345135 crs…However RIL Financials are as sourced from RIL’s website (imputed rate used by them is US $ =Rs 44.64)…for the other Global Giants,the figures are sourced from the NYSE/Nasdaq 

KEY COMPARATIVE STATISTICS : RIL v/s Global Peers and Global Tech Giants

 

Key Stat

Unit

RIL

ExxonMobil

BP

Apple

Microsoft

Google

 

Share Price

US $

22.75

63

32

272

26

500

Market Cap

US $ b

75

294

99

247

231

159

 

 

 

 

 

 

 

 

Revenues

US $ b

44.6

301

266

51

59

25

PAT

US $ b

3.6

21

20

11

17

7

 

 

 

 

 

 

 

 

Cash

US $ b

4.9

13.8

7

23

37

26.5

Debt

US $ b

13.9

9.5

32

6

 

 

 

 

 

 

 

 

Trailing PE

Multiple

21

14

5

23

13.7

22.8

Forward PE

Multiple

15

9

4.3

17

11.4

15.7

Price/Book

Multiple

2.7

2.6

0.9

6.3

5

4

Clearly the Tech Giants rule the Exchanges in terms of Valuation and even Market Caps…High Multiples,High Profits and Profit Margins,Low or No Debt,Rising Revenues with new product launches have worked wonders for the three Tech Giants

RIL always thinks BIG…..Organic Growth in Technology Sector will take ages…But with a Market Cap of relatively lower US $ 75 b and the fact that 1/3rd of Capital Employed is through Debt even Inorganic Growth looks difficult for RIL to take over a major World Giant among it’s peers and even the Tech sector if it wants to enter it….what does look interesting is the Infotel playout it has just started with a near US $ 4 b layout…I’ve got their presentation on this and shall be examining it closely sometime soon

So are RIL’s Best Years Ahead as Mukesh Ambani assured shareholders today ?….With strong proven large scale project implementation capabilities RIL surely is excited about the opportunities opening up in India and even overseas…RIL is already a Giant in India in it’s Operations…With It’s Expansion Plans in Petrochemicals,it’s new big scale forays in diversified fields,it hopes to be reckoned as a Global Giant

It’s Best Years may certainly be ahead,but the above table shows it’s got a hell of a lot of catching up to do with Global Giants

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2.34 out !…4.20 in ! as Supreme Court rules in favour of RIL and Mukesh Ambani and not RNRL and Brother Anil Ambani…Feel Sad for Anil..so does RNRL now stand for ‘Rahe Na Rahe Ltd’!…I don’t think so

I’ve no bias… but feel sad for Anil Ambani…. I’m with him on this one….. Supreme Court gave a split verdict today in the RIL v/s RNRL Gas Pricing embroglio in favour of RIL

So now 2.34 is out and 4.20 is in !… One perspective is that RIL and the Government have done a 4.20 on this one!

In 2005 when the Reliance Group was split between the Ambani Brothers a MOU was signed between the brothers and blessed by their Mother too… It prescribed that RNRL would be supplied 28 million mmbtu gas  daily by RIL at a price of US $ 2.34/mmbtu….. Anil agreed to the split valuations which included this arrangement too…. He went ahead and got his company RNRL to enter into an agreement with his ambitious baby, Reliance Power, to in turn supply this Gas from RIL for the upcoming 7.4 GW Dadri Power Plant which is slated to be the biggest Gas based Power Plant in Asia

RNRL went to court as RIL refused to honour this MOU citing that Gas was the National Property and they were merely Contractors and the Government owned the Gas and reserved the right to allocate this Gas and also approve the Pricing for this…. The New Pricing Benchmark became US $ 4.20/mmbtu

High Court ruled in favour of RNRL and said that the MOU should be honoured…. RIL went to the Apex Court, the Supreme Court….. Today the three judge bench gave a 2-1 Verdict in favour of RIL and the Government, overruling the High Court Order…. their view is that

  • This Gas is a National Resource and the Government is the Owner
  • The Production Sharing Contract (PSC) between RIL and the Government supersedes all other agreements, including the MOU between the brothers
  • The MOU itself is not a legally binding document, but can be used for inspiration in future negotiations for gas supply between RIL and RNRL… These negotiations must be concluded inside six weeks and the Company law Board should be approached to approve the same

Feel Sad that RNRL and Anil lost out here…. simply because I feel strongly as below

  • This issue must be viewed with the mindset of ‘Substance over Form’… just like auditors are trained to do… also it should be viewed,like the Painter Hussain controversy, with a mindset of looking at the ‘intention’ behind creating this controversy
  • The MOU was created in 2005 with this Price of US $ 2.34/mmbtu which was the benchmark then as it was a NTPC tender price….. Why was no noise created then ! ?…. Even if the MOU was secret, the price was not!…. Clearly as the Price of Gas began rising, RIL attempted to wriggle out of this committment to supply gas to RNRL at US $ 2.34/mmtu
  • It was only in October 2007 that the Empowered Group of Ministers (EGOM) had arrived at a Formula for Gas Pricing
  • Mukesh Ambani could easily have honoured this MOU committment… it was blessed by the Mother… and in Mother India, the word of Mother is that of God !.… apparently the boiling intensity of emotions with his brother, Anil Ambani, prompted him to decide not to supply the gas at all….. So RIL chose to default citing that Government was the authority on allocation and pricing of Gas…. clearly government machinery was being misused and the government merely became a front… moot question arises… was the Government playing favourites or truly had the National Interest in mind !?.… the answer will stare at you in the face when you search history and discover that a top RIL executive was arrested because he was caught with confidential government documents…. apparently he was drafting/suggesting/amending a Union Cabinet Meeting Agenda for a Meeting to be held!…. also the current Petroleum Minister and the late Dhirubhai Ambani were great friends from their youth…. read the banned ‘Prince of Polyester’ by Hamish Mcdonald to gauge how close!…. Anil Ambani has already emotionally made these accusations and had rightly questioned as to why the Government has not withdrawn the PSC with RIL if they felt that it has been violated by the MOU !

So what will happen now….. RNRL has already lost significant value on the Stock Exchanges today…dropping from Rs 70 levels towrds Rs 50…. RIL has regained lost ground and is up marginally at Rs 1040 levels

If Anil Ambani had agreed to the Reliance Group Split in 2005 based on the Valuations on supply of 28 million mmbtu/day at a Gas Pricing of US $ 2.34/mmbtu, he is entitled to now feel aggrreived like all his shareholders too….. Clearly he should seek adequate compensation from RIL on behalf of all his shareholders…. one way is that the brothers agree to sell RNRL to RIL at price levels near Rs 100…. because the split may have then been done at a more favourable and liberal ratio for ADAG Companies… in simple words, shareholders of RIL would have received more shares in ADAG Companies in the split than they actually did if this Gas Supply and Pricing was not to be considered

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Reliance Industries announces a Bonus of 1:1 !…Now ! Now ! Now !

Reliance surprised all yesterday with a post market bonus declaration of 1:1….It last gave a bonus in 1997…and before that in 1983 and 1980

Dhirubhai Ambani,the Founder was the dramatic architect for all these bonus issues…but he passed away in 2002……Investors were like Children in those days…and the father was Dhirubhai !….his bonus announcements were always dramatic…like breaking an AGM to have a board meeting to discuss Bonus and coming back to announce a 1:1 Bonus…all pre planned

But yesterday’s Bonus was clearly less preplanned….and Investors are no longer Children…and Mukesh Ambani is surely not the father !

And I was truly amused to hear the reason why Mukesh declared this Bonus….To reward Shareholders for this Value Creation of over a lakh Crores in assets and the completion of setting up of two major projects….gas and the new refinery….Bonus is declared from Free Reserves created by Operational Profits …Reliance has enough of these…but not from the two new projects yet !….even brother Anil rewarded,if you can ,I daresay, call it that,! shareholders of Reliance Power with a 3:5 Bonus last year,within months of the IPO…even before the Company has commissioned even one power project !…the bonus was to bring down the holding cost from the obscene IPO Pricing of Rs 427.50 to Rs 270 ! It’s quoted at Rs 160 right now…so now both brothers have ‘rewarded’ with bonus after creating the assets !  

The Bonus normally reinforces the expectation of good performance into the future,though it is merely an accounting entry….may change sentiment,but not valuations 

In Reliance,the Equity now will double from Rs 1642 crs to Rs 3284 crs with just a small dent of Rs 1642 crs in reserves of over Rs 1.1 lakh crs…The Book Value will halve from Rs 700 to Rs 350…Adjusted EPS for FY 10 would be in the Rs 60-Rs 65 range.

The Share Price should open strong this morning…In fact it has opened at 4% high at Rs 2189 and is now easing….From this price the ex-bonus price adjusts to a shade below Rs 1100…that’s 16 P/E on  FY 10 EPS and 11/12 P/E on a much stronger FY 11 EPS of close to Rs 90

And this declaration of Rs 13/share as interim dividend on existing capital of Rs 1642 crs is good but it works out at just a 10% payout of projected EPS in the range of Rs 120-Rs 130 for FY 10 before adjusting for bonus

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Supreme Court : RIL v/s RNRL is Ram Jethmalani v/s Harish Salve

There were 48 TV Crews at the Supreme Court this morning…..The Cameras were positioned to broadcast live sound bytes from the lawyers of RIL and RNRL

First we had a trifle agitated, Ram Jethmalani,who represented RNRL, emerging and a hectic rush to have  Mikes thrust onto him for his comments

This is what Jethmalani said,rather accused 

” The Supreme Court has not stayed the High Court Order which had favoured RNRL.The Government is a Puppet of RIL and The Oil Ministry is in the pocket of Mukesh Ambani….according to me they (RIL) cannot deal with the Gas…They (Mukesh Ambani and RIL) can go against Moral Issues and Mother’s Mandate….It is a stupid argument ( that the MOU cannot override Sovereign Interest).In a democracy and a republic there are no sovereign authorities..all authorities are bound by a court of law ” 

Then came out a beaming Harish Salve,who stood for RIL.This is his interesting sound byte

” The Supreme Court has not passed any order today.On specific mention that RIL will continue distribution of Gas as per the January 2009 Agreement,the Court stated “We are not stopping you”….The Question is that in these changed circumstances,when Gas is selling at US $ 4.20/mmbtu ,how can one buyer insist at US $ 2.34/mmbtu…the question thus arises that how can the MOU between two brothers,to strike parity between them, override the Sovereign Policy and Interests of the Government….Supreme Court is concerned with the seriousness of this Issue……It has issued Notice to RNRL as to why the Government should not be made a part of this Case…..Jethmalani’s utterances are largely for the Galleries and not for the Courts…..MOU was subject to company and government approvals,which is being ignored….If the gas is sold at US $ 2.34,it would be a double whammy as the buyer will then sell it for US $ 4.20 and pocket the difference ! ( RNRL was to supply the Gas to Reliance Power’s Dadri Plant.This Plant will take atleast 3 years to beging Operations…so if the MOU was to be honoured,it would get Gas at US $ 2.34 and will be able to sell it at current commercial rates of US  $4.20 and pocket the difference ) When cases become weak you thump the table…This (Anil Ambani’s July 15,2009 letter to the PM) is table thumping”

On a day when the Sensex has surged to 15100 over 350 points,RNRL is down 3 % a Rs 80 while RIL is up 4% past Rs 2000,just past 2 pm

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Just heard some Insipid advise for RPL from ‘Experts’ on UTVi just now!

Two ‘Experts’, one Fundamental and the other Technical were on a Viewers Q & A show right now on UTVi…A viewers question came forth on RPL…”I have brought it at Rs 154,what should I do ?”

Both these ‘Experts’ went into detail on the merits of holding RPL for a One Year Hold !…Insipid Stuff…Guys ! RPL will not be in existence after a Year !….the RPL Price right now merely reflects a 16:1 merger ratio with Reliance Industries…RPL is Rs 125 and Reliance Industries is Rs 2000 !…That’s it !…so it’s a just a Piggy back share right now…It has to be !…what would have served the viewer well would be to explain to him that at his cost of Rs 154 in RPL ,his holding cost in Reliance Industries would be Rs 2464 …Will this Price be reached ,given the Court ruling against them in the RNRL Case ?…The downward effect of this on the EPS will be Rs 20 in FY 11…Despite this short term reaction in Reliance,it definitely will regain strength…It has a 17% weightage in the Sensex and if the Sensex has to move towards 18000 and beyond in the next year or two,it cannot be without Reliance climbing upwards towards Rs 3000 and beyond

Come On Guys in UTVi…I’ve been impressed with all of you…but you do need to vet some of your ‘Experts’ before putting them on your channel…unless ofcourse you’re being dictated by their PR exercise !