Vakrangee Limited has remained controversial for at least two decades, no matter the high profits it always reported. There is the zigzag trajectory of its stock. It is frequently under investigation for price manipulation and is a favourite of scamsters; so, questions about its credibility don’t stop. Throughout its one-way rise, from around Rs50 in April 2015 to a massive Rs500 in January 2018, there were whispers of brazen manipulation. But there has been no regulatory action. And, despite the fact that the stock has lost 80% of its value since January 2018, the regulator is still showing no signs of concern.
On 27th January, The Mumbai Mirror
) carried a detailed report on how the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) had conducted a detailed investigation into possible price manipulation of the stock in 2016 and forwarded their findings to the Securities and Exchange Board of India (SEBI) asking the regulator to investigate further. The report said, SEBI concluded that “no adverse inference is drawn” and that its investigators “may not pursue this matter any further.”
Vakrangee immediately issued an aggressive clarification to the stock exchanges (https://tinyurl.com/y7ausrl8
) and, on 4th February, Dinesh Nandwana, its CEO and managing director, wrote a letter to shareholders with the clarifications. He also borrowed from Rabindranath Tagore’s famous poem to end the letter saying: “When the head is held high, mind has no fear… Truth shall prevail.” Investors were clearly not convinced, even if SEBI chose not to draw any ‘adverse inference’.
Until the report was published, the stock had been soaring and had traded at a high of Rs515 on 24 January 2018. After the report, the stock dipped sharply on 29th January, was highly volatile on 30th January and, on the Budget day, it simple collapsed. It was locked at the lower circuit till 8th February. Curiously, barring Edelweiss Mutual Fund, no mutual fund schemes had Vakrangee in its portfolio. A month later, big-ticket investors told us how they were openly approached and persuaded to buy the stock on the assurance that the issues with the regulator were settled.
The claim appeared to ring true because the stock soared and was soon locked at the upper circuit, for days together. However, since 22nd March, the stock has been on a continuous downslide, barring a few days. The decline gathered further momentum after another report by The Ken, a digital publication. Its detailed, on-the-ground investigation reported the many inconsistencies in Vakrangee’s claimed IT-enabled businesses and the 40,000 kendras (centres) that it runs to service a tie-up with the retail giant Amazon.
had contacted Vakrangee’s management for comments which were incorporated in the article. For instance, it responded to questions about missing kendras by saying that the audit company Grant Thornton had been appointed to perform a business quality analysis. After the article appeared, Vakrangee again published a weak 3,400-word response with large excerpts of the original article and its explanations (https://tinyurl.com/ycx7tusp
). However, it cut no ice with investors and the stock continued to fall. Overall, Vakrangee’s share price has crashed from Rs515+ to just Rs95 on 2 May 2018, a fall of 81%.
Then, on 28th April, Price Waterhouse & Co. (PWC) abruptly resigned as Vakrangee’s statutory auditor. The company wrote to stock exchanges on 28th April saying, the “Audit committee has also reviewed the financial statements and has been fully satisfied with all the information and explanations provided by the company” after it had “taken into consideration the prevailing market rumours and current circumstances and has been fully satisfied by all the clarifications provided by the company.” This is interesting because Vakrangee’s eight-member board comprises five independent directors (one of them is a former executive director of SEBI) and one nominee director from an insurance company. But the markets are still unconvinced.
A historical fact check is important. Vakrangee was Harshad Mehta’s favourite stock on his comeback attempt. Those days, Harshad Mehta had befriended Dilip Pendse (who committed suicide in July 2017, frustrated with 16 years of court battles), former managing director of Tata Finance who was once considered the group’s financial whiz kid. Mr Pendse got Tata Finance and its subsidiary to purchase a 6% stake in Vakrangee starting 2 October 1999, when its price was Rs258, through Nishkalp Investment and Trading Company, its controversial subsidiary. The Tata purchase gave respectability to Vakrangee, although the set of stocks purchased by Nishkalp eventually dented the Tata image and cost it big money.
In 2009, Moneylife
had published a detailed investigation titled “Vakrangee’s Games
”. It looked into some murky business involving the acquisition of government contracts. Soon afterwards, there was another investigation by the regulator into charges of insider trading. Here, again, in October 2012, the news agency PTI reported that SEBI, in two separate orders, had dropped all charges against Vakrangee and its eight executives (including independent directors), related to violations of insider trading norms.
A common thread over the years is how Vakrangee has repeatedly courted controversy, but SEBI and the regulators (whichever the political dispensation or leadership at the regulator) have shown great alacrity in giving it a clean chit or closing investigations with an emphatic declaration of no adverse findings. On the other hand, far bigger cases (for example, the Reliance insider trading case that is being heard right now) or even smaller and inconsequential ones, such as self-trades, have often languished for a decade at SEBI.
Such fondness is not limited to SEBI. On 29th April, investment guru and professor Sanjay Bakshi tweeted: “Fun fact: NSE has a Quality 30 Index (http://bit.ly/2HAweAH
) consisting of 30 names. Check out #29 from http://bit.ly/2FqUXRY
.” Stunning as it may seem, NSE had Vakrangee in its Quality 30 Index, a select club that includes Asian Paints, Wipro, Infosys, Titan and some State-owned giants with near monopoly businesses.
I brought this to the attention of NSE’s top brass and was told that the ‘relevant folks’ have been asked to fix the issue. But that may not be so easy. NSE’s website says, “The Quality NIFTY Quality 30 Index aims to cover companies which have durable business model resulting in sustained growth. This index consists of 30 companies which are selected based on low gearing, high return on equity and profit growth. Stocks are selected based on quality score which is calculated on the basis of return on equity (RoE), debt:equity ratio (D/E) and average change in PAT.”
Vakrangee, which declares high profits and pays taxes every year, probably checks the right boxes and but here is where a mechanical index becomes a problem and requires more rigorous analysis or market intelligence. This is also the factor that mystifies many large investors, who are flummoxed by Vakrangee’s financial numbers which were religiously certified by its statutory auditors and audit committee. And that is why the already controversial PwC’s exit comes as a bombshell.
What is clear is that investors are not in a mood to buy Vakrangee’s aggressive explanations any more. The fall this time is not limited to Vakrangee but also PC Jewellers (PCJ), a listed company. Vakrangee made a big investment to purchase 20 lakh shares of PC Jewellers from its treasury funds worth over Rs1,500 crore on 26 January 2018. Dinesh Nandwana had told Bloomberg Quint that “Vakrangee had added the jewellery company’s logo to its presentation as it had already soft launched some of their products in Vakrangee kendras” but the Jeweller had denied any business relationship with Vakrangee in a call with analysts, says the report. PCJ too has dropped in tandem with Vakrangee. Investment advisor, Ambareesh Baliga, tweeted this picture of the chart given above.
Given its past track record, will Vakrangee work its way out of this hole once again? We will be watching.
Further to our article, Vakrangee has sent a disclosure to the BSE
regarding resignation of existing auditor and appointment of a new auditor. "PWC has resigned from their position as the statutory auditor of the company with effect from 27 April 2018. PWC had satisfactorily done the limited review for the period till 31 December 2017. The Company has appointed AP Sanzgiri & Co as statutory auditors for FY2017-18 until the conclusion of its ensuing Annual General Meeting to fill in the casual vacancy caused due to resignation PWC," Vakrangee says in its regulatory filing.
Here are the links to its regulatory filing https://www.bseindia.com/xml-data/corpfiling/AttachHis/519406b9-3f60-4cb8-8ba1-265ff6bf1ae2.pdf