NDDB Never Took Approval from Govt for Setting up Subsidiaries of Mother Dairy, Confirms MoS Anurag Thakur
Anurag Thakur, minister of state (MoS) for finance and corporate affairs, has confirmed in Rajya Sabha that National Dairy Development Board (NDDB) did not take any approval from the government for setting up subsidiaries of Mother Dairy Fruit & Vegetable Pvt Ltd (Mother Dairy or MDFVPL) and for amalgamation of IndiaGen Ltd with Indian Immunologicals Ltd, a unit of NDDB. 
 
Responding to a question, Mr Thakur, says, "NDDB has applied for ex-post facto rectification in March 2008 for creation of IndiaGen Ltd, for which approval was not given by the then department of animal husbandry, dairying and fisheries (now department of animal husbandry and dairying). For other companies created by Mother Dairy, the government approval was not taken by NDDB."
 
 
Prof Manoj Kumar Jha, a member of Parliament (MP) from Rajya Sabha had asked questions whether the government had given previous approval to NDDB under section 43 of the NDDB Act to form companies, which in turn could independently form their own subsidiary companies.
 
Earlier, while responding to Moneylife, NDDB has claimed that it does not require permission to set up a stepdown subsidiary. “For an NDDB subsidiary to form another subsidiary, no prior Central government approval was taken as according to legal opinion this was not required,” it had said.
 
NDDB has four subsidiaries registered under the companies act. This include, Mother Dairy or MDFVPL), NDDB Dairy Services (NDS), Indian Dairy Machinery Co Ltd (IDMC) and Indian Immunologicals Ltd (IIL). Hyderabad-based "IIL has one subsidiary company Pristine Biologicals (NZ) Ltd. NDDB had obtained permission from government for forming aforesaid subsidiaries," Mr Thakur says in his written reply.
 
Quoting information provided by NDDB, the minister says, Indian Immunologicals was set up in 2004, for which the government did not give permission for amalgamation. He says, "Subsequently NDDB acquired the entire shareholding of IndiaGen in 2008. Later IndiaGen became wholly owned subsidiary of IIL in December 2008 and later got amalgamated with IIL in April 2010."
 
 
Mother Dairy, a subsidiary of NDDB, created nine of its own units for which no permission from the government was taken. In all these companies, NDDB is shown as holding company. These companies are Mother Dairy Foods Processing Ltd (set up on 24 May 2002), Mother Dairy Foods Ltd (24 May 2002), Mother Dairy Delhi Ltd (5 September 2002), Mother Dairy India Ltd (1 April 2003), Parag Milk Foods (UP) Ltd (28 August 2003), Mother Dairy Uttaranchal Ltd (formerly known as Aanchal Milk Foods Ltd) (17 October 2003), Mother Dairy (AP) Ltd (formerly known as Maathasri Milk Products Ltd) (21 March 2003), Mother Dairy Kerala Ltd (formerly known as Milma Milk Foods Ltd) (17 March 2003) and Safal National Exchange of India Ltd (20 September 2006).
 
According to the minister, eight of the subsidiaries were merged with Mother Dairy as per sanction given by the Delhi High Court between 2004 and 2013. Here are the details...
 
 
However, as reported by Moneylife, while Mother Dairy Foods Ltd received a sanction for amalgamation with Mother Dairy on 23 July 2004, the subsidiary was last reported in 2002-03 in NDDB's annual report. 
 
Parag Milkfoods (UP) Ltd, a joint venture (JV), was last reported in 2004-05, Mother Dairy Delhi Ltd, a JV last reported in 2005-06, Mother Dairy Food Processing Ltd has vanished from NDDB reports after 2006-07.
 
Mother Dairy India Ltd, vanished from NDDB annual reports from 2006-07, while Milma Foods Ltd, a JV was last reported in 2005-06. Aanchal Milkfoods Ltd, other JV that was last reported in 2005-06 while Maathashri Milkfoods Ltd, a JV has last been reported in 2005-06. Safal National Exchange of India Ltd was a JV of which there is no record at all in NDDB annual reports.
 
Why is the disappearance significant? Because hundreds of crore rupees extended to these entities for multiple purposes appear to have gone down the drain along with the companies, without any disclosure. The auditors have had no comments to offer about these vanishing entities. 
 
Now let’s look at the sums involved. Between 2004-05 and 2011-12, Mother Dairy received funds worth Rs411 crore in the form of investment, grant and other considerations from NDDB. It was also provided with subsidised dairy commodities worth Rs405 crore and other goods worth Rs542 crore at discounted price. NDDB also allowed Mother Dairy the use of an entire office complex in Noida for several years. 
 
Further, NDDB extended loans of Rs688.7 crore to Mother Dairy at below market interest for over past 13 years. If that weren’t enough, seven subsidiaries of Mother Dairy separately received grants from NDDB. 
 
In return, over a 13-year period, Mother Dairy has paid a total dividend of Rs55 crore to NDDB, which is a return of less than 2%.
 
Earlier in June 2019, NDDB provided us a long explanation for setting up of each subsidiary and the reasons for their closure. It has claimed that “there has been no financial loss in the process of amalgamation or disinvestment, and all decision are taken by the competent authority. From time to time NDDB is called upon to carry out activities, which call for formation of subsidiaries and then based on the progress or changed circumstances decisions are taken to continue, sell stake or amalgamate with another subsidiary. NDDB’s annual report makes the related party disclosures as per accounting standard-18. If a subsidiary has ceased to exist, it would not appear in related party disclosures in the NDDB annual report. Therefore to state that the subsidiaries vanished is baseless and misleading.”
 
Moneylife had essentially said that NDDB has incorrectly and in a legally questionable manner used Section 43(1) of the NDDB Act to set up more than a dozen subsidiary companies, mostly step 2 and step 3 subsidiaries, transfer hundreds of crores of capital, assets and assistance from NDDB to such subsidiaries and then quietly amalgamate all the step 2 and step 3 subsidiaries with NDDB’s step 1 subsidiary companies, without any disclosures in the relevant annual reports of NDDB, hoping that nobody will ever notice.
 
We also said that this has been going on for a decade and has not been highlighted by NDDB’s statutory auditors. We also pointed out that NDDB fights hard to remain out of the purview of the Right to Information (RTI) Act as well scrutiny by the Central Vigilance Commission or CAG (Comptroller & Auditor General). 
 
The famous statutory body, once led by the legendary Dr Verghese Kurien, better known as India’s milkman or father of the white revolution, clearly deserves greater accountability and public scrutiny.     
 
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    COMMENTS

    gcmbinty

    2 months ago

    Why it is necessary for the organisations like NDDB to take approval of the Government in the administrative ministry, if the constitution of the Board has the required provisions? I feel, just an information to the administrative ministry should work unless, of course, there are any objections from the Comptroller & Auditor general of India to any mismanagement . Let there be an element of independence of these government agencies.

    Binoy Gupta

    2 months ago

    Earlier, while responding to Moneylife, NDDB has claimed that it does not require permission to set up a stepdown subsidiary.
    “For an NDDB subsidiary to form another subsidiary, no prior Central government approval was taken as according to legal opinion this was not required,” it had said.
    In all fairness, the Govt. should quote some legal authority to counter this line of argument.

    Real Estate: 22 Out of 35 Cities Witnessed a Drop in Q2 Sales; Unsold Stock Remains Stable, says Liases Foras
    During the September 2019 quarter, top 35 cities in India recorded marginal decline in overall sales, especially in 22 out of 35 cities. At the same time, due to new launches, unsold stock in these 35 cities remained stable during the second quarter (Q2) of FY2020, says a report from Liases Foras Real Estate Rang & Research Pvt Ltd.
     
    According to the independent, non-broking real estate research company, in September quarter, top 35 cities witnessed 2% decline in overall sales to 91115 units compared with 93,426 units in previous quarter. It says, "About 57% of the sales of this quarter were contributed by sub-Rs50 lakh segment. Sales share of sub-Rs50 lakh segment has shown a 2% drop on year-on-year (YoY) and a percent’s drop on quarter-on-quarter (QoQ) basis."
     
     
    Liases Foras says top 35 cities witnessed new launches of 80,459 units during the second quarter of FY19-20 showing a whopping 19% growth over the same quarter last year and a marginal increase of 2% as compared to the last quarter. 
     
    It says, "The unsold stock had remained stable on QoQ basis in 35 cities while it increased by 5% on YoY basis. This increase can be attributed to the high new launches in the March 2019 and June 2019 quarter. The current unsold across 35 cities stands at 1,310,570 units."
     
     
    Liases Foras says, sales in the cost bracket of Rs50 lakh to Rs1 crore decreased by 1% on QoQ basis while it increased by 2% on YoY basis. "MMR had maximum sales share of 19% in the segment followed by Bangalore (17%), Pune (12%), NCR (9%) and Hyderabad (9%). Sales in luxury segment (Rs1–Rs2 crore) saw an uptick with 7% growth on QoQ basis and 8% growth on YoY basis. MMR had maximum share of 32% in this segment. Sales in ultra-luxury segment (above Rs2 crore) remained stable on QoQ basis and decreased by 4% on YoY basis. MMR, NCR, Hyderabad and Bangalore combined together had a sales share of 75% in this segment," it added. 
     
     
    According to the report, weighted average price across 35 cities exhibited a marginal drop of a percent as compared to previous quarter. "Prices dropped in 14 cities while increased in only nine cities," it added.
     
     
    Maximum number of new launches were in Rs30 lakh to Rs50 lakh bracket and the segment accounted for almost one-third (31%) of total units launched during the quarter with the national capital region (NCR) contributing 18% of the launches in this segment. This was followed by Mumbai Metropolitan Region (MMR) at 14%, Outer MMR at 13%, Pune at 11% and Ahmedabad at 10%.
     
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    Prepaid Tariff Hikes in Telecom Not Adequate For Sustainability: Report
    Prepaid tariff hikes earlier this month along with the moratorium on spectrum payments announced by the government will not be a complete solution for the telecom sector in India, which is reeling under acute financial stress, says a research note.
     
    In the report, Acuité Ratings and Research says, “…even taking into account the gains from the revision, the debt coverage levels in the sector as reflected in the debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) levels will continue to remain elevated between 3 times to 6 times. While the relief provided by the government through a moratorium on spectrum payments for two years will help to an extent, the high leverage in the balance sheets will necessitate either significant equity infusion or asset monetisation.”
     
    Acuité estimates that Indian telecom sector will need to raise equity or monetise assets to the extent of Rs50,000 core or over $6 billion over the next one to two years to ensure continuing investments in the networks critical for business sustainability and market share consolidation.
     
    The telecom sector in India is at an inflection point. There are only three large private sector telecom service operators in India down from 10 in 2014. Except for one, all the players are in severe financial distress and there are doubts on their ability to service debt over the medium term. While the sudden increase in liabilities to the government by Rs1.4 lakh crore as per order from the Supreme Court, is one of the triggers for this distress, two of the existing operators have been making EBITDA losses since the last two quarters.
     
     
    *PBT excluding extraordinary charges  
    **Debt figures are as on 31 March 2019, for Jio, some figures are estimates
    @Debt to EBITDA based on annualised EBITDA estimates without taking into account tariff revision
    # Latest market capitalisation 
     
    The tariff levels in India were clearly inadequate to sustain the existing operations in the sector. 
     
    The telecom tariffs in India is set to witness a significant rise at least to the extent of 40% with two of the operators - Vodafone Idea and Bharti Airtel having already announced their revised prepaid tariff plans and the third player, Reliance Jio expected to follow shortly. "This will be necessary to sustain the services of the telecom operators over the medium term. We are of the opinion that these players may also need to revise their post-paid tariffs to revive their profitability and importantly, to generate some level of cash accruals for near term capital expenditure," Acuité says.      
     
    According to the research note, the domestic telecom sector is clearly not in a shape to make the necessary investments in 5G services. The government had announced plans to auction additional spectrum required for 5G early 2020. 
     
    The financial position of the telecom companies already had an impact on the previous spectrum auction held in 2016-17 when only 41% of the spectrum on offer was bid out and only Rs65,000 crore could be raised against the base price of Rs5.6 lakh crore.  For the proposed auction in the 3300-3600 MhZ band, TRAI has proposed a base price of Rs492 crore per MhZ, which translates into a spectrum outgo of Rs50,000 crore for each operator, assuming a minimum requirement of 100 Mhz for 5G rollout. 
     
    Acuité says, "Such a base price is not only the highest among the nations where data is available so far but also significantly higher with South Korea for example having auction cost at Rs134 core per Mhz. Importantly, the balance sheets of the operators except for Reliance Jio, may not permit any aggressive bids for 5G spectrum in the near term. We therefore are of the view that the launch of 5G networks in India may not happen over the next two-three years and may get postponed beyond 2022. Further, the regular capital expenditure including the expansion and upgradation of existing networks is likely to be slowed down in the near term, which will have a bearing on the quality of telecom services."    
     
    It is in this context that the tariffs hikes are critical for the Indian telecom sector. The tariff hikes announced by the three players primarily focus on the prepaid customers where excessive competition for subscriber addition and market share, had led to very low average revenue per user (ARPUs). The charges for voice calls had become almost negligible and data prices had dropped very sharply to an average of Rs12 per GB compared to Rs269 in 2014. 
     
    "The hikes in prepaid tariffs may lead to a rise of 20%-25% in the EBITDA of the incumbent players since around 60% of the subscribers are in the prepaid category," the report concluded.
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    COMMENTS

    Bipin Kochar

    2 months ago

    In addition to the 150000 cr which DOT will be getting from Telecom companies, a host of other companies like GAIL, Powergrid, Railways have to pay it a similar amount -

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