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.
 

Insider Trading?
 

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.
 

Regulatory charges
 

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.