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“In India, companies may fall sick, but promoters rarely do!”

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Ramalinga Raju

Ernst & Young did Maytas Properties Valuation of Rs 6523 crs in just one Day !?

Just read a very interesting update on Maytas Properties in todays’ edition of Financial Express

Maytas Properties is facing the prospects of the Government taking it over the Board,just as they did for Satyam

The matter was being heard by the Company Law Board (CLB) and the company’s counsel suggested that the Government could appoint an observer or a Director on the Board…This was opposed by the Deputy Director,who represented the Government…He wants the Government to take over the Whole Board and thus the Company itself.

The Deputy Director made some interesting arguments on the Ernst & Young (E & Y) Valuation of Rs 6523 crs of Maytas Properties

  • There was a clear nexus between Father,Ramalinga Raju of Satyam, and Son,B Rama Raju,of Maytas Properties as they had relied on the E & Y Valuation to justify Satyam’s Proposal to takeover Maytas
  • This Valuation is Hollow as Maytas,as per government knowledge, has no land bank and has just a turnover of Rs 22 crs but the valuation was done at Rs 6523 crs
  • Government Alleges Fraud in the Valuation….E & Y has said in it’s Valuation report that they have valued all Maytas’s 31 projects in Chennai     ,Hyderabad,Bangalore and Nagpur and except for the Electronic City Project in Bangalore,land has been acquired
  • The fact is that Maytas Properties does not have any land.Some of it’s subsidiary companies have Development Rights,not lands….so the only asset the subsidiaries have are these rights
  • CLB Chairman,S Balasubramanian enquired whether E & Y did the Valuation in a which the Deputy Director replied ” No,the Valuation was done in a day only.”

So we have Two of the Big Four Accounting Firms facing bigtime flak in this sordid Satyam Saga…Price Waterhouse as Satyam auditors and Ernst & Young as Maytas Properties Valuers

What’s going to come out next !   

What a call !… Should you be Buying or Selling Larsen and Satyam !?

I have been receiving serious queries from friends, relatives, acquaintances, clients and associates on Satyam and Larsen…. In light of what has happened and is happening and will happen should we Buy, Sell or Hold Shares of these two Companies !?

Really Ironic and Amusing that as Larsen averages a rising Satyam to save face and reduce it’s high holding cost, you want to average a falling Larsen for the same reasons !

Let’s take one Company at a Time


Along with it’s Promoter,Ramalinga Raju,Satyam’s Share Price too fell from Grace to levels of Rs 15 from Rs 225 in mid December… It’s been rising since, to Rs 52 today, as Larsen keeps making a strong pitch to buying it out and has already committed Rs 600 crores for a 12% Equity Stake

I had strongly warned you to sell off Satyam in my Dec 17, 2008 Blog at Rs 162 just a day after the Maytas proposal was announced by the Satyam Board and withdrawn overnight… stating that the share price will sink further and that Ramalinga Raju was a Goner !… This was much before he made his confession on January 7, 2009 

At Rs 52, Satyam is reviving with Larsen support… If you wish to Hold or are even contemplating Buying Into Satyam, then be cautioned that you have to take the risk like Larsen is doing, in assessing that Satyam will bounce back and the Hundreds of Millions of Dollars of Contingent Liability on account of Class Action Law Suits in USA  will not materialise… Larsen seems confident… I don’t… Maybe they know something I don’t… refer to earlier Satyam and Larsen blogs for more on this !

So would I sell Satyam at Rs 52… At Rs 15, I would have taken the risk to Hold but now at Rs 52, I would begin offloading in tranches… but then again my risk profile may not be yours and you may be willing to take the Risk that Larsen is taking by Investing in Satyam


It’s ,without any doubt,India’s Super Icon of Success and Scale…Of course it should be in your Equity portfolio

Problem is that most of you already hold this Share at a high Holding Cost of nearly Rs 2000… In the macro meltdown in 2008, Larsen had sunk towards Rs 800… However after it disclosed that it had purchased 3.95% Equity Stake in Satyam between December 23, 2008 and January 6, 2009 at an average of Rs 174 and after the Maytas Proposal Fiasco, It’s Share Price has sunk to below Rs 650 as market and shareholders clearly disapproved of this continuing ‘Mistake’ of Investing in Satyam. read more

Larsen’s CMD, Mr A M Naik tries to justify increasing stake to 12% in Satyam

This is a gist of the Conference call that Larsen organised today to justify and clarify the 12% stake in Satyam

  • L&T management clearly stated that L&T is no longer just an E&C company. It’s businesses span a range of activities in manufacturing as well as services, including heavy engineering, manufacturing,  power, process engineering and financial, IT and engineering services.
  •  L&T Infotech, with revenues of US$400mn in FY08, has been in the IT services business for 10 years and hence, the acquisition of a stake in Satyam is not an unrelated diversification for L&T.
  • L&T acquired the 1st tranche of 3.95% stake in Satyam after the announcement and subsequent cancellation of the proposed acquisition of Maytas Infra and Maytas Properties by Satyam, but before the news of fraud by Ramalinga Raju was announced. The average market price of Satyam at which the stake was acquired was Rs 174/share.
  • The 2nd round of acquisition of ~8.09% was completed on January 23, 2009 at an average price of Rs 34.share. L&T now holds a 12.04% stake in Satyam, at an average price of Rs80/share.
  • The initial stake was acquired with an intention to form a strategic alliance with Satyam for targeting clients jointly, especially in areas where L&T Infotech and Satyam were competitors.
  • On disclosure of the fraud by the ex-Chairman of Satyam, L&T decided to increase its stake with a view to preserve the value of the already acquired stake and to have a say in any major action the new Board of Satyam would decide about the company’s future
  • L&T’s decision to acquire the additional stake was based on its assessment (and feedback from various stakeholders in Satyam) of Satyam’s demonstrated track record, trained manpower and valuable client relationships.
  • L&T believes that major clients are unlikely to terminate contracts for two reasons – one, most clients are satisfied with Satyam’s services and would likely continue if issues of governance etc are addressed wby the new Board and two, the prohibitive costs of transition to new vendors.
  • L&T’s decision to increase its stake was also in part, influenced by the knowledge gained that Satyam did not have any debt on its books and all its properties were mortgage free and that Satyam has in its possession, 250 acres of land with clear titles.
  • On potential/contingent liabilities, L&T management is reasonably confident of no material impact of the UPaid case on Satyam. However, the management is yet to assess the impact, if at all, the class action suits filed against Satyam in the USA.
  • L&T has acquired the 12.04% stake in Satyam through L&T Capital, which is the designated vehicle for acquisition of all such strategic stakes.
  • The other strategic acquisitions made by the company in the recent past include NIIT Technologies (~5% stake to access markets in Europe where NIIT has a strong presence) and Kalindee Rail Nirman Engineers (~14.5%, to leverage Kalindee’s capabilities in EPC and allied services for Railways).
  • The management clarified that the Satyam acquisition, being strategic in nature, L&T Capital will not be providing for any MTM losses in its books.
  • read more

    Larsen Desperate to Save Satyam ! save itself !

    On January 9,2009 I had blogged that Larsen has jumped the Gun in Investing in Satyam and has lost over 85% and over Rs 300 crs in just two days after Ramalinga Raju’s confession on January 7,2009

    Check it out again.Click on

    I had even suggested a possibility that Larsen had picked up the Satyam Promoters pledged shares sold by Lenders…and perhaps Ramalinga Raju awaited this sale before making the Confession

    A response to this blog that there could be a possibility that one of the Lenders was related to one of the Directors of Larsen and this Lender was bailed out by Larsen Monies by buying out their Pledged Shares got me thinking

    I checked the Larsen & Toubro Annual Report and found that the Whole Time Director & Senior Executive Vice President and CIO in charge of IT and Technology Services is one Mr V K Magapu….Larsen’s Investment of over Rs 400 crs by purchasing 2.69 cr shares to take a 4% Stake in Satyam,even after the Satyam -Maytas Controversy was still burning,despite reversal of the proposal,defies Commonsense and Sanity.As CIO and in charge of IT and Technology Services,Mr Magapu surely must have been involved in recommending this Investment…Why ! ?….On Confession by Ramalinga Raju on January 7,2009,Larsen’s Investment in Satyam eroded over 85% in just two days and Larsen is now sitting on a Notional Loss of over Rs 350 crs !

    Chairman & Managing Director of Larsen & Toubro,Mr A M Naik must have slept well only till the night of January 6,2009….he ‘s been desperately trying to save his Investment in Satyam by offering to buy out Satyam ! He’s galvanising support from Institution shareholders like LIC and even the Ministers and is making a presentation to the New Board of Directors of Satyam today and tomorrow

    What Timing ! Mr Naik just received the ET Business Leader of the Year Award last week and this Satyam Loss !

    Naik needs to explain why did Larsen,perceived by all as being responsible, conservative and risk averse in it’s operations,dare to venture into controversial Satyam by buying shares from December 23,2008 to January 6,2009…Do Vested Interests exist? Also why this turnaround now !? After Ramalinga Raju’s Confession on January 7,2009 Mr Naik came on the business channels to assure that Larsen was merely an Investor in Satyam and had recently got a 4% stake and had no plans to buy it out or increase it’s stake ! read more

    Possible Nature of Phantom and Fictitious Accounting Entries in SATYAM

    Disgraced and jailed Promoter Chairman,Ramalinga Raju, of Satyam,confessed on January 7, 2009 that there is a huge cash hole of Rs 5040 crs in the Balance Sheet of Satyam as on September 30, 2008 and that for years he has been resorting to Inflating Revenues

    So what could be the Nature, Form, Impact and Effect of the Phantom and Fictitious Accounting Entries that Ramalinga Raju and his accomplices must have passed in the Real Books of Satyam ?…. or did they keep a seperate Phantom Set of Accounting Books, possibly off the physical premises of Satyam Offices, which they presented to the auditors, Price Waterhouse

    Especially for those not conversant with Finance and Accounts I have tried to present the nature of Phantom and Fictitious Accounting Entries that must have been created by Ramalinga Raju and his accomplices to create such a Huge and Increasing Cash Hole over the Years


    Nature of Phantom & Fictitious Accounting Entries in the Books of Satyam 


    Accounting Entry

    Reflected in





    Inflated Sales

    of Rs 100


    Rs 100

    Client Debtors

    Balance Sheet under Debtors in Current Assets

    Inflates Assets and therefore Networth and Book Value 


     Rs 100


     Profit & Loss Account

    under Sales

     Inflates Revenues and therefore Profits that get transferred to Reserves at Year end,thus inflating Networth 



     Against Sales in I above,showing Cost of Sales through Cost Entry for Salaries

    at an assumed amount of Rs 75, less than Sales as passed above


     Rs 75

    Personnel Expenses

     Profit & Loss A/c

     under Expenditure

     as Personnel Expenses

    Increases Expenditure and therefore Cost of Sales and reduces Profit…also creates ‘Benami’ Employees that don’t exist 


    Rs 75


    Reduces the Bank Balance in the Balance Sheet under Bank in Current Assets

    Reduces Bank Balance in the Books



    Showing Fictitious Receipt of Rs 100 from   Client Debtors for the Fictitious Sales in I above


     Rs 100


     Increases Bank Balance by Rs 100 in the Balance Sheet under Bank in Current Assets




    Rs 100


    Cancels out Dr in Client Debtors by Rs 100 being Amount earlier shown in the Balance Sheet by the Inflated  Sales as in I


    At Year end the above gets reflected as below in Accounts

     In the     Profit and Loss A/c


    Sales of  Rs 100 Less Expenditure of Personnel Expenses Rs 75 = Profit of Rs 25


    In the     Balance Sheet


    Liabilities : Rs 25 in Reserves being Profit Transferred at Year end from P & L A/c


    Assets : Rs 25 in  ‘Bank’ in Current Assets being the Profit reflected as received


    So this is How Sales ,Profits and Bank Balance is fictitiously Inflated in the Books of Account


    The Problem occurs when Liabilities and  Assets in the Balance Sheet are rolled over to the next year


    Thus Bank Balance keeps getting inflated with Increasing Quantum of Fictitious Inflated Sales and Personnel Expenses Entries ,with the cycle being completed by showing Fictitious Receipts from the Debtors


    Ramalinga Raju, do you realise that although, if one has to believe you, that your intentions were to prop up Revenue and Profit and margins growths over the years to attract more Business,your Diabolical and Disastrous Creative Accounting created a Frankistien which went out of control and fed on itself

    Was it your conscience,Ramalinga Raju,as you say,that led to your courageous confession or was it that you were facing a Hobson’s Choice and were cornered so bad that you had no real option but to make this Confession?… I really don’t know !… But you are a ‘Guru’ ! Man !… How did you have the B____  to do all this…for years…on such a huge scale… and not get caught ! ?…how did you manage to hoodwink your auditors, Price Waterhouse, bankers and tax authorities ! for years? read more

    Was this how Ramalinga Raju of Satyam hoodwinked the Auditing Firm of Price Waterhouse for Years?

    I am truly intrigued…sure all of you too are…. as to how Ramalinga Raju of Satyam got past the auditors,Price Waterhouse (PW)

    So when PW disclosed a few days ago that they had appropriate evidence to support the Satyam audit,it really got me thinking

    It would thus seem that PW must have seen the Bank’s Fixed Deposit Receipts which supported their Values in the Satyam Balance Sheet…We know now that these deposits were largely fictitious…so either PW was shown forged bank deposit receipts (possibly,but not necessarily, in collusion with Bank Employees) or Genuine bank deposit receipts but no longer valid

    If it was a case of forgery,then it is self explanatory how this fraud happened

    But what if the origin of these receipts was genuine ?

    Years ago when I was doing articles,I came across several fraudulent situations….Same Inventories were shifted from one Godown to another to show that they represented and reflected two different Closing Stock Entries in Two different Group Companies….In another case,this was long before Demat,a promoter of a large Industrial Group reported his Physical Share Holdings in his flagship as lost to his own company.The company re-issued the shares as duplicate shares….The Promoter  who had pledged his holdings for a Loan and had not really lost the shares, was now able to pledge the duplicate shares with another Bank to raise another loan !…Remember How Harshad Mehta used the Bank Receipts (BR) route where on one set of Bonds against which a BR was issued in ready forward deals,he created  several leverages on just that one BR with different banks !   

     So what if the Game plan of Ramalinga Raju was like this

    • Bank Deposits were actually created and Receipts obtained
    • Later the banks were intimated that Satyam had lost the original receipts and could the Bank issue Duplicate Ones…Banks may have Obliged as Satyam was a Top Customer
    • Using these Duplicate Receipts, Ramalinga Raju prematurely redeemed the Deposits and created fresh deposits in new banks and played out the same game again and again
    • However the Auditors,Price Waterhouse, must have been shown all the original Bank Deposit Receipts to back up the Balance Sheet Amounts…They accepted these for years without investigating the Interest element or verifying the existence of the Deposits independently and directly with banks…Even assuming that PW may have done this and Bank Employees may have colluded with Ramalinga Raju and provided the deposit confirmations even though no Deposits existed,then auditing the Interest Accrued Entries would have exposed all of this…as these remained unpaid quarter after quarter,auditor antennas should have been raised….there is no question of TDS unless interest was paid.

    So Hypothetically,as Ramalinga Raju confesses the Cash Hole is Rs 5040 crs,PW must have been shown original Bank Deposit Receipts of around this amount

    To illustrate,an original Rs 500 crores must have been rolled over as fresh deposit in newer banks after being prematurely redeemed after obtaining Duplicate Receipt on claiming the Original receipt was Lost or Misplaced…This routine was replayed in different banks and would have equipped Ramalinga Raju with Several Original Bank Deposit Receipts to show to the auditors,PW

    It is simply a one Hour job to confirm all of this….Just take the copies of the Original Bank Deposit Receipts which PW must have as evidence in their Files and verify each with the concerned banks…The banks will confirm that they had issued such Receipts,but on them being reported lost ,duplicate receipts were issued and against which the deposits were prematurely broken.Thus the Original Receipts,which were reported as lost,were no longer Valid…..Of course PW should have also confirmed and verified the Bank F D Statements which would have also carried Interest paid and accrued entries.Mere bank receipt or FD Certificate should not have been accepted as evidence.  read more

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