After hitting a monthly low last week, Concurrent shares are hitting upper circuits—now backed by dubious information and inspired recommendations in blogs. The regulators have still not reacted
Shares of Concurrent (India) Infrastructure Ltd hit the upper-circuit limit for the third day in a row on Tuesday, following some clarification by the company to the Bombay Stock Exchange (BSE). Just last week, Concurrent shares were falling before hitting a monthly low of Rs24.1 on the BSE. Meanwhile, investors are still wondering what the real details about the company are.Earlier, Moneylife had reported on how the company had apparently misled investors with a false announcement on a Sikkim power project (read more: http://www.moneylife.in/article/8/6290.html), and some investors had taken others for a ride in Concurrent shares (http://www.moneylife.in/article/8/6391.html). Thereafter, Concurrent's chairman and managing director Koneru Sudhir Babu met us at the Moneylife office on 23rd June to assert that everything was open and above board. We then sent the company some questions. The company has now replied but there are still gaps in its answers.
The company has reported a sudden boost in revenues, net profit as well as operating margins (OPM) and earnings per share (EPS) in its March quarter results (read more: http://www.moneylife.in/article/8/6438.html). But among the most important issues is a remarkable discrepancy in its quarterly and annual results. Concurrent had reported negligible (or zero!) depreciation in the last quarter which was quite astounding for any functioning company, not to speak of an infrastructure company which would have to have heavy investments. Mr Babu, in a written reply, told us that the prime reason for not having depreciation in significant numbers is that the company is at present outsourcing the works after detailed engineering, hence there is low depreciation. He said that the company has started to build its in-house equipment to execute projects from 1st April and equipment-related depreciation will get reflected in the first quarter of FY11. But any company would certainly have lots of depreciable assets-including computers, office equipment and automobiles.
Secondly, in a regulatory filing, Concurrent said on 10th May that it has been issued an assurance letter from Kranthi Constructions for a work order of Rs74.37 crore for the project 'Erosion Control for Managing Flash Flood for Guwahati city', accorded a top priority by the government of Assam. However, in a news report, Assam Tribune, a local daily, listed the total project cost as Rs26.25 crore, which is divided into two parts-Rs5 crore sub-project for Basistha-Bahini Watershed and Rs21.25 crore sub-project for RG Baruah Road-Bharalu Watershed. The first sub-project has secured sanction from the North Eastern Council (NEC) for funding in 2009-10 fiscal, the report said.
We asked Concurrent on how is there a big cost difference between its filing and the project cost. Concurrent said that Hyderabad-based Kranthi Constructions has received contracts from the authorities in which the first letter is for Rs21.25 crore and second is for Rs53.12 crore. "They (Kranthi Constructions) in turn assigned the work for processing and preparing of project proposal to Concurrent India with an assurance that with the completion of processing and preparing of project proposal, Concurrent will be given an order for the total aggregate of works equivalent to Rs74.37 crore for which Kranthi Constructions got two separate assurance letters."
In a telecon with Moneylife, the Concurrent CMD said, "The project cost is not Rs21.25 crore, it is Rs75 crore, which was given from Central government aid and because there would be a lot of approvals required for the total project they will not give a single letter and would split the work. If they come up with a single order then they will have to invite global tenders. The project has been split as per Central government norms under which the minister can sanction projects up to a certain level and the department has powers to sanction a project for a lower level." We have no way of independently verifying this.
There are other issues too. On 27 November 2009, Concurrent reported that it has signed a collaboration agreement with Eliss Richardson Inc and that the company will transfer technical knowhow for turnkey implementation of power plants to Concurrent. Moneylife searched the Internet for any reference about Eliss Richardson. All we could find out was related with Concurrent. And if one removes Concurrent from the search input, there is not a single result about Eliss Richardson on Google, Yahoo or Bling. Eliss Richardson just does not exist-at least on the Web!
When asked about Eliss Richardson, this is what Mr Babu said: "Eliss Richardson is (an) engineering, power-consulting company based in the US. This company has developed a new technology in thermal and solar energy. We are in (a) tie-up with them to have total Indian market in a joint venture. This is a new technology, which has not come yet and we need to get approvals from the concerned departments. Solar is going to be a major source of energy and with this technology we think we would be able to reduce its cost to Rs12 crore per MW from Rs18 crore per MW."
When asked why there is not a single mention of Eliss Richardson on the Internet, Mr Babu said, "This is not a big company. Basically it is a technocrat. I will send you their email ID in case you want to contact them. I can give you their numbers so that you can have (a) discussion with them."
What is interesting is a majority of contractors, partners or sub-contracts mentioned by Concurrent in all its regulatory filings either do not exist or are mentioned in tandem with Concurrent on the Web. Whether it is Ellis Richardson or Sreenidhi Construction or Brahmani Udyog, the story is the same. According to Mr Babu, Kranthi Constructions, which gave it two assurance letters for the Guwahati flash flood related work, is a special Class-1 contractor based in Hyderabad. But what we found on the Internet is that the same contractor is mentioned as a real-estate builder and developer.
Moneylife has always attempted to offer a balanced view to its readers and in order to protect investors has researched each and every fact before publishing. However, according to Mr Babu, by directly contacting the concerned authorities, Moneylife is trying to "create confusion" in their company affairs. "(We) request you to first deal with the company and we shall endeavour to give you whatever information you like," he said in the mail.
However, it was only when Sikkim Power Development Corp (SPDC) denied any deal or contract with the company, Concurrent came up with a clarification related to the Sikkim Power project. If someone had not checked with SPDC, then the company would not have come out with a clarification. Interestingly, during the period between its announcement and clarification, its shares were trading at its highest level. (read more: http://www.moneylife.in/article/8/6290.html).
On 9th February, Concurrent had said that it had procured an order from Indo Asian Projects Ltd for supply of beneficiated laterite on for unloading siding for Vedanta Aluminium Ltd, Orissa, and the total value of the contract was Rs11.8 crore. Indo Asian Projects is also a BSE listed company. However, when we checked, we did not find any regulatory filing by Indo Asian Projects about ordering supply of laterite from anyone. Interestingly, Indo Asian Projects has reported total revenues of Rs2.12 crore for FY10 and it has supposedly given an order (or sub-contract) of Rs11.8 crore to Concurrent!
Mr Babu, in his email said, "Concurrent is currently implementing the order by buying its own trucks and hiring trucks from others and lifting laterite from the east coast and transporting the same to the railway siding and also to manufacturing sites. Since the order has been assigned by Indo Asian they might not be reflecting (the same) in their financials, however, we are nobody to comment on their financials."
He sent us some images that show some trucks labelled as 'Concurrent', but one cannot make out when and where the photos were clicked. He told us that these trucks are being used to transport laterite from Rajahmundry to Vedanta Aluminium's Jharsuguda plant in Orissa.
As mentioned in our previous article, we have asked for the annual report and balance sheet of Concurrent from Mr Babu. We are still waiting for it. However, the mail sent to us by the company said: "This is the maiden year after Mr Sudhir Babu has taken over the company management. The first audited balance sheet will be released 21 days before the AGM, which is scheduled in August 2010 and the unaudited financials in terms of required public disclosures have been given to BSE, which you may refer."
Meanwhile, the bunch of investors led by Arun Mukherjee continues to plug the stock in various places including a dubious website (http://www.arunthestocksguru.com/2010/06/concurrent-india-infrastructure-ltd_24.html). In his latest blog, Mr Mukherjee talks about a Rs-1,300 crore contract win of Concurrent in Sri Lanka. It is old news, reported by the company in November 2009, where no financial details were given. However, it is surprising that the blogger came out with the project cost and other details as well as the size of Concurrent's total order book (whether true or false, we don't know) and financial estimates of other projects.
The output in the current crop year ending September would touch 18.8 million tonnes, which is nearly three million tonnes higher than the estimates made at the beginning of the season, according to a senior government official
After two consecutive years of lower output than demand, India sugar production is expected to rebound to touch 23 million tonnes in the next crop year starting October on the back of higher area under cane, reports PTI.
"Sugar production in 2010-11 crop year (that runs from October to September) is estimated at 23 million tonnes. Area under sugarcane so far has increased by 13% at 47 lakh hectare this year," a senior government official said.
The estimate for the next crop year was arrived at a meeting with the cane commissioners of all the sugar producing states in the country.
Higher output in the next crop year is expected to help the government keep sugar prices under control.
Sugar prices in the retail market had touched nearly Rs50 a kg in mid-January and is now ruling at Rs32-33 a kg in the national capital.
The output in the current crop year ending September would touch 18.8 million tonnes, which is nearly three million tonnes higher than the estimates made at the beginning of the season, he added.
Sugar output has been lower than the annual demand of 23 million tonnes in the current as well as last year. India, the world's second largest producer and biggest consumer, had produced 14.7 million tonnes in 2008-09.
The country has imported over six million tonnes of sugar since early last year to meet domestic demand.
Maharashtra, the country's largest producer, is estimated to produce 8.6 million tonnes in the next crop year, up from about 7.1 million tonnes in the current year. Uttar Pradesh is likely to produce six million tonnes next year, the official said.
The sugar industry has been demanding that the government should impose import duty on white sugar to protect domestic mills and check sliding prices, which is affecting their margins.
An empowered group of ministers (EGoM), headed by finance minister Pranab Mukherjee, had last week deferred the decision to levy 15% duty on white sugar due to high inflation which is hovering around 16%.
How will banks and the corporate sector deal with the new rate structure and will it lead to a fairer regime?
With the base rate methodology of loan pricing set to kick in from 1st July, banks and companies alike will be gearing up for the paradigm shift it will usher into the Indian banking system. If analysts are to be believed, both banks and corporates will have to adjust themselves to the new system.
This new system is expected to change the way banks look at their loan books and bring about a greater transparency in pricing of loans. For corporates, it means that the days of easy loans are finally over, as they can no longer negotiate for rates lower than the benchmark prime lending rate (BPLR).
ASV Krishnan, senior analyst with Ambit Capital believes that some big companies may actually look for other avenues for funding. "Since banks will not be able to lend below the base rate, big corporates may not go for that avenue any more. They will need to look at alternative instruments. The commercial paper (CP) market will pick up as more and more large corporates will raise short-term funds by floating CP. Banks may subscribe to such papers. So for a bank, instead of generating advances, it will appear in investments."
From the bank's perspective, loan-book growth will need to moderate, feels Mr Krishnan. "The consensus Street estimate is a 20% growth in loan book. But if large corporates do not come for loans, then that will have to be revised downward. The Street may also need to price in a lower credit growth."
Another analyst, Nilanjan Karfa of BRICS Securities feels that current interest rate conditions will affect the corporate sector more than the base rate. "Since the overall interest rate regime is getting tighter, we could very well see RBI raising rates by 25-50 bps in the next policy. The overall liquidity situation is also tighter, which means that interest rates will go up. So this will have more impact on corporate loan rates than the base rate."
He agreed that transparency is, more or less, expected with this mechanism but feels that small companies need not necessarily benefit from the regime. "Earlier, banks used to lend at BPLR less 3%-4%. They used to adjust prices around a constant BPLR. So while Reliance was granted a loan at BPLR less 3%, a smaller company could only manage BPLR less 1%. Now, it will be the other way round. The bank will probably ask for base rate plus 1% from Reliance and base rate plus 2% from the smaller company. The pricing will still be based on the rating of the company you are lending to."
Deepak Tiwary, a banking sector analyst with KR Choksey said, "Earlier, small companies and SMEs used to subsidise the large companies, who were in a better bargaining position. They could ask for rates as low as 6%-7%. That will not happen now. So while large companies will be affected slightly, it is clearly good for the SMEs."
Mr Tiwary believes that the new structure will not impact banks' profitability much. "In case of a rise in interest rates, banks will be able to pass on the burden. It will not make much difference to them. Even in this regime, banks have enough room to manipulate in terms of the time horizon. Also, they can change their methodology to calculate base rate after six months."
The country's largest lender, State Bank of India (SBI) has fixed its base rate at 7.5%. This will set the tone for other banks, who will keep their own rates around the same mark to stay competitive in the market. It is believed that the industry as a whole will fix its base rate between 6.5%-8.5%. The industry is now eagerly awaiting what rate is fixed by the largest private sector lender, ICICI Bank, which is expected to make the announcement tomorrow.
The time has officially come for all banks in the country to move on to the base rate method of pricing loans, as mandated by the central bank, the Reserve Bank of India (RBI), earlier this year. With effect from 1st July, all new loans in the banking system will be priced under the new mechanism, wherein banks will not be allowed to lend below the base rate.
Under the previous system, large companies were particularly used to preferential treatment on the part of banks, as lenders allowed substantial discounts on loan rates in a bid to out-price competitors. This resulted in unfair, discriminatory treatment towards smaller companies, who ended up shelling out much more in terms of interest. But with the new norms kicking in next month, such practices will be mostly muted.