Conning promoters exploiting exchange’s incompetence or friendly Regulators acting hand-in-glove with fly-by-night operators?

One and a half year-old Kolkata-registered Newever Trade Wings Ltd (NTW) is floating Rs 6.32 cr IPO through BSE-SME at par. On the face of it, NTW may not look extraordinary. But, the promoters’ background, group company stock’s recent meteoric rise on BSE and the behind-the-scene moves do suggest that the Kayans of Kolkata are out for a bigger game!

 

Lousy Fundamentals

For a company engaged in just trading (of iron & steel products), NTW’s equity base is already large at Rs 17.62 cr. In fact, the company’s present turnover is much lower than its equity. The capital is now proposed to be increased to Rs 23.95 cr. The entire net issue proceed is earmarked for long term working capital.

How will they service such a relatively large capital base? For the year ended March 2013, the company posted a profit of less than Rs 4 lakh (EPS being 2 paise). The promoters do not have any proven business model to reward the investors by way of dividend. However, they seem to have all tricks to get exorbitant quotes for their group company’s stock on BSE!  

Operationally, of the Rs 17.62 cr already raised as capital by NTW, as much as Rs 10.68 cr is locked in trade debtors. Interestingly, the company’s entire sales in fiscal 2013 were converted into debtors! Another Rs 5.32 cr has been advanced to a group company, Dunhil Trader Private Ltd, whose financials are not disclosed in the offer document.

Promoter-company is a commission agent. Group companies viz Dunhil Trader, Sharp Trading and Trinity Tradelink – all sound like trading companies with no credible track record to boot. Also, Sharp Trading is already listed on BSE. Why then need one more trading company in the listed domain?

 

Public stake via private placements!

Of late, Kayans are indeed on an acquisition spree. They have a holding company in the name and style of Dunhil Healthcare Private Ltd (DHPL) incorporated in August 2009. The name sounds like a pharma company but, actually, its main income is “commission”! In fiscal 2012, this company had just Rs 1 lakh equity and its reserves were worth just Rs 2000! Revenue and profit too were negligible at Rs 16000 and Rs 700 respectively. Early next fiscal DHPL’s capital was enhanced to Rs 12 lakh and its reserves bulged to more than Rs 11 cr! Obviously, the promoters pumped in unjustifiably high premium. Even after infusing more than Rs 11 cr, the company’s revenue was still pathetic at Rs 5.27 lakh on which it netted a profit of Rs 44,000 in fiscal 2013.   

The company which is now going public, NTW, was originally incorporated by M/s Goutam Singh and Sanjay Gupta in April 2012 as Newever Infrahomes Ltd. Strangely, in the very next month DHPL  acquired this company and changed the name to the present one. Whereas DHPL subscribed to only 50 lakh shares at par amounting to Rs 5 cr, which is just 28.37% of the equity, more than 70% (12.42 cr) was subscribed by about 850 individuals. When private placements are banned in this country how did Kayans rope in so many public shareholders?

 

Group fairytale goes unchecked by BSE

The shares of 1985-incorporated Sharp Trading and Finance Ltd (STFL) have been listed on the BSE for more than two and a half decades. STFL has no credible financial record to speak about.  At the end of fiscal 2013, it reported just Rs 2.88 lakh revenue on which it incurred Rs 18.72 lakh loss! Against its tiny capital of Rs 24.50 lakh the accumulated loss stood at Rs 49.08 lakh. In other words, STFL is a fit case for BIFR! Yet, the Rs 10 paid-up stock is currently quoting, hold your breath, over Rs 900! 

How an illiquid `BIFR candidate’ with a minuscule shareholder base about 200 is commanding such a fabulous price? This amply demonstrates that our regulators do not have a mechanism to curtail price manipulations. In fact the various moves that the Kayans have made without any regulatory hurdle in the past two years gives an impression that the regulators are either thoroughly incompetent or they are acting hand-in-glove with the promoters.

After twenty-five years of existence the Mumbai-registered STFL officially changed its name to Omnitech Petroleum Ltd in April 2011 for reasons best known only to them which BSE promptly refused to acknowledge. Thus, while the ROC records incorporated the new name, BSE continued to have the old name.

In April 2012, Kayans-controlled DHPL entered into a Share Purchase Agreement  with the previous promoters of  STFL, M/s. Kamal Kishore Gokal Chand Gupta, Gaurav Vishnukumar Gupta, Vikas Kamal Kishore Gupta, Vishnukumar Gokal Chand Gupta, Babulal Mulchad Varma, Rajendra Mulchand Varma, Tarachand Mulchand Varma and Bajarangbali Mulchand Varma and acquired 1,66,962 equity shares of Rs. 10 each representing 68.15% of the paid-up equity capital at a price of Rs. 185 per share for a consideration of Rs.3.09 cr. Besides acquiring the majority control of the company through the share purchase agreement, DHPL also made open offer in June 2012 and mopped up additional 11,900 equity shares thereby taking its aggregate holdings to 73%. 

The following questions arise here: On what basis did the Kayans pay Rs 185 for a loss making share whose net worth was negative? What was the motive behind the take over? Also, when they already have a trading company in the listed domain, why float a second company, NTW, public that too for same business? 

 

Pushing m-cap from Rs 22 cr to Rs 2400 cr at one stroke!

Continuing their acquisition spree in the field of trading the Kayans recently took over another company called Trinity Tradelink Ltd (TTL). Incorporated in May 2007 in West Bengal and engaged in the business of trading of jute, tea and other agri-products, the company’s registered office was shifted to Mumbai in May this year.  Even though this company has reported a turnover of more than Rs 35 cr for fiscal 2013, net profit was just Rs 5 lakh! As compared the listed STFL’s tiny equity of Rs 24.50 lakh, the closely-held TTL has a large equity of over Rs 26 cr (reserves being less than Rs 10 lakh). Intriguingly, Kayans hold only less than 35% of TTL’s equity while more than 65% (Rs 17.11 cr) is held by the public! How did the public get nearly two-thirds of the closely-held company’s equity? Was there any private placement in TTL too? 

The STFL-TTL merger was formalized only couple days ago through a postal ballot consequent to which STFL’s name is being changed to Trinity Tradelink Ltd. The merged entity TTL will have an equity base of Rs 26.25 cr without a bottom line to support. But, that has not deterred the share price.  The Rs 10 paid-up stock is currently ruling around Rs 915 logging a market capitalization of more than Rs 2400 cr! When many a dividend-bearing blue chip is going at a discount to its book value, who is interested in STFL at an absurd valuation? Will BSE give an explanation how such manipulations are allowed to take place on the exchange? There is already no dearth of scams in this country. When regulators become silent spectators, crooked promoters have field day!

OFFER AT A GLANCE
Issuer Name	Newever Trade Wings Ltd
Offer Amount	Rs 6.32 cr
Offer Quantity	63.2 lakh shares of Rs 10 each
Offer % on Total Equity	26.4
Post-issue Free Float  %	78.9
Promoters’ stake %	21.1
Post-IPO Capital (Cr)	23.95
Offer Price	Rs 10
Application Quantity	10,000 & Multiples of 10,000
Offer Opens	September 30, 2013
Offer Closes	October 3, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Inventure Merchant Banker
Market Maker	Bindal Equities
Registrar	Sharepro Services