Westlife Development has been locked in an upper circuit almost non-stop since January 2009. The reason: McDonalds' franchisee Hardcastle Restaurants became a direct subsidiary of this listed company. But why is it not classified an illiquid stock coming under the purview of the new call auction regulation?
Over the past seven trading days, the share price of Westlife Development has gone up by nearly 15% with just one share being traded every day. The stock has been hitting the upper circuit limit on each of the seven days. Over the past year the stock has moved up by over 3,531% from Rs7.88 on 21 May 2012 to Rs286 as on 3 July 2013. Excluding the bulk deals, on an average just 2-3 shares have been traded per day over the one year period. Westlife Development (Earlier named: Dhanaprayog Investments Co) used to offer investment and allied financial services, its license as a NBFC was cancelled in 2009. In December last year, Hardcastle Restaurants, the franchisee of American fast-food chain McDonald's, became a 100% subsidiary of Westlife Development. A company which is similar to Jubilant Foodworks? That’s what leading media houses think. A headline in the Economic Times reads, “Reverse merger makes McDonald’ franchisee parent Westlife Developments market darling.” A “market darling”, in which the ‘market’ cannot participate.
Three years back in June 2010, we had reported about the unusual trading and the huge surge in price at that time as well. (Read: Unquoted) Despite the poor financials, its stock price had gained 4,307% from 1 January 2009 to 27 April 2010. Trading volumes were suspiciously inconsistent over this period as well. There was no attractive business strategy that would sustain the price quoted. Obviously, some people knew what they were doing.
So what, rather who is driving this stock up to new highs? As per the latest shareholding disclosure dated March 2013, apart from the 12 shareholders that form the promoter group making up for 75% of the total shares, there are just 52 other shareholders of the company. Out of these 52 shareholders, four hold nearly 24.17% of the total number of shares. The remaining 0.83% of the shareholding (equivalent to approximately 1.50 lakh shares) is divided among the remaining 48 shareholders.
The BL Jatia group holds majority stake in Westlife Development. The Jatias have the McDonald franchise in India. There have been several bulk deals between the promoters - the most recent one on 19 June was the transfer of 6.30 lakh shares from Ushadevi Jatia to Amit Jatia. Earlier, the promoter Ushadevi Jatia had transferred 6.25 lakh shares to Smita Jatia, another promoter of the company. There have been several inter-promoter bulk deals in the past as well.
The market regulator recently came up with a regulation for illiquid stocks (Read: Curbing manipulation in illiquid stocks: Another harebrained idea by SEBI?). The company, however, is not classified as an illiquid stock despite the poor trade volumes. According to the watchdog, an illiquid stock is a stock that satisfies all of the following criteria:
1. The average daily trading volume of the scrip in a quarter is less than 10,000;
2. The average daily number of trades is less than 50 in a quarter;
3. The scrip is classified at illiquid at all exchanges where it is traded.
Strangely, this company has managed to escape the purview of this regulation even though, excluding the bulk deals, on an average just 2-3 shares have been traded per day.
The company in the past has delayed in making disclosure of changes in shareholding to stock exchanges as required under regulation 6(4) of SEBI Takeover Code, 1997. Vide a consent order the company reached a settlement to pay just Rs30,000 in April 2009. Moneylife has pointed out earlier that consent orders have been inadequate in curbing malpractices. (Read: Are SEBI’s consent orders a sham?).
Winmore Leasing & Holdings which is a part of the promoter group of Westlife Development also reached a settlement of Rs1 lakh through a consent order in July 2009 for failure in making disclosure of shareholding/changes in shareholding to stock exchanges as required under regulations 6(2),6(4) for year 1997 and 8(3) for years 1998 to 1999 of SEBI Takeover Code, 1997.
Stock manipulation in the Indian market is rife. In every issue of Moneylife magazine we publish details of one such stock being manipulated in the ‘Unquoted’ section. Regulators may pretend that all is fine with the Indian markets but you would be astounded by the extent of price manipulation that goes on regularly under the nose of the market regulator Securities and Exchange Board of India (SEBI) and the two main stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). We have written a cover story as well on this issue (Read: Stock Manipulation). The regulator is unconcerned.
The fall of the rupee to an all-time low against the dollar and weak global cues led the market lower today. A close above 5,850 on the Nifty may bring some gains while a close below 5,760 may lead to a sharp decline. The National Stock Exchange (NSE) recorded a volume of 52.09 crore shares and advance-decline ratio of 527:792.
The market opened sharply lower on weak global cues as the better-than-expected US jobs data re-ignited worries about the Federal Reserve scaling down its bond-buying programme. The fall of the rupee to a new all-time low in early trade also weighed on investor sentiment. The Chinese government’s proposal to reduce credit in a bid to force consolidation where overcapacity was seen, also drove the Asian markets lower in morning trade.
The Nifty opened 35 points lower at 5,833 and the Sensex started the day at 19,419, down 77 points from its previous close. Selling pressure in realty, metal, oil & gas, PSU and auto stocks led the indices lower as trade got underway.
The rupee fell by a huge 97 paise to breach the 61-mark to 61.19, a new all-time low, against the dollar in early trade on heavy demand for the American currency amid capital outflows. The local currency had plunged to 60.76 intraday on 26th June.
The sell-off led the benchmarks to their lows at around 10.00am. At the lows, the Nifty fell to 5,776 and the Sensex dropped to 19,186. The indices remained weak in remainder of the morning trade as the weak rupee pushed financial stocks lower.
The market recovered from its lows in noon trade on buying in select stocks and suspected intervention by Reserve Bank of India (RBI) to stabilise the rupee. The gains enabled the indices hit their highs in post-noon trade, though still in the red. The Nifty rose to 5,833 and the Sensex inched higher to 19,422 at their respective highs.
However, a minor bout of profit taking in the late session saw the market closing off the highs. The Nifty closed 56 points (0.96%) lower to 5,812 and the Sensex finished the session at 19,325, a cut of 171 points (0.88%).
Among the broader indices, the BSE Mid-cap index fell 0.06% and the BSE Small-cap index declined 0.38%.
The sectoral gainers were BSE Fast Moving Consumer Goods (up 0.72%); BSE TECk (up 0.43%); BSE IT (up 0.32%) and BSE Capital Goods (up 0.13%). The top losers were BSE Oil & Gas (down 1.94%); BSE PSU (down 1.90%); BSE Realty (down 1.79%); BSE Auto (down 1.51%) and BSE Metal (down 1.37%).
Out of the 30 stocks on the Sensex, nine stocks settled higher. The gainers were BHEL (up 2.32%); Wipro (up 1.50%); ITC (up 1.39%); Sun Pharmaceutical Industries (up 0.78%) and Infosys (up 0.70%). The main losers were ONGC (down 3.49%); HDFC (down 3.01%); Tata Motors (down 2.70%); GAIL India (down 2.63%) and Coal India (down 2.32%).
The top two A Group gainers on the BSE were—Reliance Communications (up 7.19%) and Reliance Power (up 5.24%).
The top two A Group losers on the BSE were—BPCL (down 5.64%) and Gitanjali Gems (down 5%).
The top two B Group gainers on the BSE were—Punjab Communications (up 19.93%) and Nagarjuna Oil Refinery (up 19.06%).
The top two B Group losers on the BSE were—Avance Tech (down 14.29%) and Sunitee Chemicals (down 12.50%).
Of the 50 stocks on the Nifty, 16 ended in the in the green. The major gainers were IndusInd Bank (up 3.98%); HCL Technologies (up 3.07%); BHEL (up 2.74%); Reliance Infrastructure (up 2.48%) and ACC (up 1.74%). The key losers were BPCL (down 5.56%); Jaiprakash Associates (down 4.13%); ONGC (down 3.84%); Mahindra & Mahindra (down 2.87%) and Tata Motors (down 2.73%).
Markets across Asia closed lower as investors believed that China’s plan to reduce credit would reduce credit growth by around 750 billion yuan ($122 billion). Worries of the US Fed tapering its stimulus also led the markets lower.
The Shanghai Composite tumbled 2.44%; the Hang Seng tanked 1.31%; the Jakarta Composite dropped 3.68%; the KLSE Composite declined 0.53%; the Nikkei 225 contracted 1.40%; the Straits Times fell 0.45%; the Seoul Composite declined 0.90% and the Taiwan Weighted settled 1.44% down.
At the time of writing, the key European markets were recouped from early losses and were in the positive. At the same time, the US stock futures were in the green, indicating a positive opening for US stocks later in the day.
Back home, foreign institutional investors were net sellers of shares totalling Rs15.70 crore on Friday whereas domestic institutional investors were net buyers of stocks amounting to Rs105.27 crore.
Apollo Hospitals Enterprises (AHEL) has said that it has received the board’s approval to invest Rs2,250 crore over the next three years. The investment will be funded through existing funds, incremental debt and internal accruals, according to the company's 2012-13 Annual Report. The stock declined 0.76% to Rs955.50 on the NSE.
Power transmission company Jyoti Structures has recently secured export orders worth Rs1,200 crore from countries including Kenya, Tanzania, Namibia, Nigeria, Philippines and Tajikistan. The orders pertain to engineering, tower testing and turn key construction of transmission lines and sub stations, as per the company’s filing with the exchanges. The stock gained 1.22% to settle at Rs20.75 on the NSE.
Infrastructure major Punj Lloyd has received a contract to construct a residential complex for the Delhi Police at an estimated cost of Rs1,300 crore at Dheerpur in the National Capital. The project, being developed on public-private partnership (PPP) mode, will have over 5,200 residential units, three schools and some commercial space, and will be maintained by Punj Lloyd for 25 years. The stock gained 1.08% to close at Rs32.65 on the NSE.