BSE’s incompetence thoroughly exposed!

Market regulators are supposed to protect investors from manipulators. But, GCM group has managed to fool investors time and again exposing BSE’s incompetence. The quality of IPOs entertained by BSE in recent months and the unjustifiable post-listing price trend seriously question the utility of BSE’s SME Platform    

The Baids of Global Capital Markets (GCM), who have had a pathetic track record since they went public for the first time in 1995, are out in the market for the second time in just five months. The modus-operandi is very simple. They inflate profits before the IPO and report losses after raising money. Public company parks funds under the guise of loans or investments into private ‘khokha’ companies which in turn play up the share price of the public company. They have many companies operating in related line of businesses. Core promoters’ stake is abysmally low. Yet, BSE is allowing such promoters to have their say on its SME Platform.

Claimed to have 22 years experience in finance field, the Kolkata-originated Chartered Accountant, Inder Chand Baid, floated public Global Capital Markets Ltd (GCML) during the peak of mid-nineties’ primary market boom. Despite being in operation for more than five years and paying dividend for three years, GCML offered shares at par. The company boasted an annualized net profit of Rs 1.25 cr on a capital of Rs 2.93 cr in 1994 and the promoters had promised to hold 43.5% of the post-issue capital of Rs 7.08 cr.

GCML’s capital was increased to Rs 23.70 cr by 2010 but the top line was worth only Rs 1.35 cr on which it netted Rs 27 lakh yielding an EPS of just Rs 11 paise. Surprisingly, in next fiscal, capital was increased by Rs 1.2 cr at a hefty premium of Rs 12 cr. The company’s revenue leapt ten times to Rs 13.4 cr in that year but, net profit amounted to only Rs 70 lakh yielding a negligible EPS of 3 paise. In fiscal 2012, revenue increased by Rs 6 cr to Rs 19 cr and profit moved up from Rs 28 lakh to Rs 98 lakh netting an EPS of 4 paise. For fiscal 2013, on a top line of Rs 19.97 cr, the company posted a profit of Rs 33 lakh. In fact for the quarter ended March 2013, it reported Rs 1.98 cr loss.

Intriguingly, when GCM Securities Ltd went public, GCML reported profits but, skipped publishing un-audited results citing that it would publish audited results 2012-13 within 60 days. Post-GCM Securities listing, GCML reported depleted earnings! Despite pathetic earnings (13 paise per Rs 10 paid-up share) and dismal last quarter, the share is quoting at more than Rs 135! When the promoters’ stake is just 5% and when there is no earnings to back up, how come the stock is commanding such an exorbitant price?

The behaviour of GCML scrip indeed deserves a thorough investigation. The Rs 10 share was quoting as low as Re 1 in 2004. For years the scrip was languishing far below par. Suddenly in 2010, it hit a century which was followed by a 10:1 split! In 2012, it crossed Rs 20 (equivalent to Rs 200 pre-split). This was followed by the consolidation 1:10 which took the price further up to Rs 273! However, within a month the price crashed to Rs 145. Surprisingly, the regulators turned blind eye.   

GCML’s bottom line is not even a crore yet its market cap is placed around Rs 350 cr. Also GCM Securities commands a market cap close to Rs 300 cr when its top line is not even a million. How does one justify such valuations for a group whose credentials are highly questionable?

How do the promoters control GCML with just 5% stake? Interestingly, as many as 364 unknown private companies classified under the ‘public category’ are collectively holding about 30% of GCML’s equity. They say only Global Capital Market, GCM Securities, GCM Commodity, Cadillac Vanijya, Chello Commotrade, Silver Pearl Commercial and GCM Capital Advisors are part of the group. But, the fact is, companies like Agradooti Vanijya, Risorgimento Industrial, Jackson Investments, Sprint Vanijya, Samriddhi Commotrade, etc., have been used by the promoters to shift their holdings in the public entities. Why BSE has not looked into the circular investment tactics adopted by GCML promoters?

Has BSE forgotten its own action on GCML? The shares were suspended from October 2005 and trading recommenced only in July 2007. GCML changed its name to Global Capital Market & Infrastructure Ltd in June 2010 though even after two years, the company has no link with Infrastructure industry!  Interestingly, BSE itself has refused to accept the company’s new name and still continues to display the old name. BSE, though has a serious reservation with GCML on name change, is entertaining GCML-supported companies through its SME platform thereby helping the core promoters in their dubious activities.

GCML tapped the market in 1995 promising to expand its leasing, investment banking and stock broking activity. The company never put up a consistent performance in any of these fields. In March 2013, they floated public GCM Sec and raised Rs 12.18 cr for additional margin requirement of stock broking. Interestingly, in June 2013, GCM Sec informed BSE that the Company has approved an investment of Rs. 12.5 cr in its subsidiary, GCM Capital Advisor Ltd, which will enable the latter to undertake investment banking activities and corporate advisory activities, as it is planning to get registered with SEBI for Category – I Merchant Banker!

Meanwhile GCM Sec is now floating public GCM Commodity and Derivatives Ltd for funding commodity broking and derivatives trading. In other words, the group’s first public company GCML’s original businesses are now distributed among three new entities. Going by their track, one should not be surprised if GCM Capital Advisors too taps the market sooner or later.

A representative at GCM Commodity office, who claims to be a responsible executive involved in the operations of both GCM Sec and GCM Commodity, refuses to acknowledge GCML as a group company! This should throw enough light on what’s in store for the future!

OFFER AT A GLANCE
Issuer Name	GCM Commodity & Derivatives Ltd
Offer Amount	Rs 7.02 cr
Offer Quantity	35.10 lakh shares of Rs 10 each
Offer % on Total Equity	47.3
Post-issue Free Float  %	47.3
Core Promoters stake %	9.0
Post-IPO Capital (Cr)	7.43
Offer Price	Rs 20
Application Quantity	6,000 & Multiples of 6,000
Offer Opens	August 1, 2013
Offer Closes	August 5, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Inventure Merchant Banker
Market Maker	Bindal Equities
Registrar	Purva Sharegistry