Promoters’ startling trail exposes regulators’ incompetency.

Very few could match Thakkars of Amrapali Group in stock manipulation yet our regulators seem helpless in stopping them from tapping the capital markets. Group’s flagship share is languishing below par even after two decades of going public. The group’s second public company shares, which were offered at an unjustifiably high price of Rs 100 each two years ago, are currently quoted at 60% discount. As if these were not enough, the third company of the group is asking an exorbitant price of Rs 120 for a share whose earning capacity was not even 20 paise last year!     

OFFER AT A GLANCE
Name	Amrapali Fincap Ltd
Offer Amount	Rs 42.48 cr
Offer Quantity	35.40 lakh shares of Rs 10 each
Offer on Total Equity	26.3%
Post-issue Promo stake	20.1%
Post-IPO Capital	Rs 13.44 cr
Offer Price	Rs 120
Application Quantity	1200 & Multiples of 1200
Offer Opens	July 20, 2015
Offer Closes	July 22, 2015
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Corporate Strategic Allianz
Market Maker	Khajanchi & Gandhi Stock Broking
Underwriters	Corporate Strategic (58%), Khajanchi & Gandhi (42%)
Registrar	Satellite Corporate Services

 

The Offer

In October 2013, the Ahmedabad-based Amrapali group raised about Rs 26 cr under the banner Amrapali Capital & Finance Services (ACFSL) offering 25.78 lakh shares of Rs 10 each at a price of Rs 100 a piece. While the offer quantum amounted to 26.4%, the promoters staked in nearly 52% of the post-issue equity of Rs 9.78 cr. The group is now floating Amrapali Fincap Ltd (AFL) public to mop up more than Rs 42 cr. Not only the offer quantum is more this time but, even the offer price is kept higher at Rs 120. Surprisingly, the promoters propose to hold only 20% in AFL’s post-issue capital of Rs 13.44 cr. For its IPO, AFL has appointed the same Lead Manager, Market Maker and Registrar that ACFSL had hired in 2013.  

 

Issue Object 

Whereas ACFSL had earmarked Rs 21.5 cr of its issue proceeds for enhancement of margin money with exchanges, AFL proposes to invest Rs 23 cr in an obscure NBFC and another Rs 15 cr in setting up of its office in Ahmedabad. In May 2015, AFL has reportedly entered into an agreement for purchase of office premises in Lake View Tower at Vastrapur and claims to have paid an advance of Rs. 5 cr to Ashrita Construction Pvt Ltd (ACPL), a group company of Thakkars.

As regards the investment in NBFC, AFL is said to have entered into a MOU dated April 11, 2015 with Maulesh Investment Pvt Ltd (MIPL) represented by Maulesh Hasmukhbhai Shah for acquiring 100% shareholding of MIPL. The company claims to have made a payment of Rs 1.32 cr towards share capital of MIPL. Nevertheless, the RBI approval for the NBFC operation is yet to be obtained. Any delay in getting approval from RBI or rejection of change in management in MIPL by RBI would thus adversely affect AFL’s operation and its financial result. It is worth noting here that, in the past, AFL had applied twice to the RBI for registering itself as Non-Banking Finance Company (NBFC) which was virtually rejected by the RBI. Apparently, after the rejection of AFL’s application by the RBI, AFL entered into MOU with the directors of MIPL for acquiring the management and share holding control of that company.

 

Business Profile

Originally incorporated as Akshar Entertainment Pvt Ltd in November 2004, the company was engaged in providing operational and marketing services at Naginwadi, Ahmedabad with the promoter company, Amrapali Industries Ltd (AIL), for supply, construction, installation and commissioning of an ultra fast-action, musical-dancing fountain, laser projection system and floating fountains, water screen at Kankaria. The business was however discontinued from May 2013 due to legal issue with Ahmedabad Municipal Corporation as the lease agreement was with Amrapali Industries. Mean while the name of the company was changed to Amrapali Fincap in February 2010 and the company entered in to the business of trading in commodities like silver, gold, agricultural products and shares (same activities of AIL), besides undertaking lending business.

 

Financial Track

Of late, Amrapali group companies seem to thrive mainly on `other income’ for survival.

Notwithstanding a grandiose `operating revenue’ of Rs 6788 cr in fiscal 2015, AIL could net a profit of Rs 47 lakh only with the help of other income of Rs 9.96 cr! ACFSL posted a net profit of Rs 25 lakh after booking Rs 6.29 cr as other income. AFL reported negative operating revenue for the 10-month period up to January 2015 but netted a record profit of Rs 1.52 cr after taking a credit of Rs 7.91 cr under other income.

Though AFL boasts of having a net worth of over Rs 99 cr for more than five years, its aggregate net profit for five years (from 2010 to 2014) did not add up to even Rs 50 lakh! In other words, the highest EPS that AFL registered in a full year was only 19 paise that was in fiscal 2014. What’s more, AFL’s net operating cash flow has been negative in five out of last six years.  

Interestingly, AFL’s operation (funding) caters mainly to promoters’ relatives. As on March 31, 2014 and January 31, 2015 AFL’s short term loans and advances portfolio stood at Rs118.62 cr and Rs 114.22 cr respectively of which Rs 78.24 cr and Rs 41.75 cr respectively were lent to companies, firms and cooperative societies connected to promoters/directors’ relatives!

(Rs Lakh)	AMRAPALI INDUSTRIES	AMRAPALI CAPITAL	AMRAPALI FINCAP
PERIOD UPTO	31-Mar-15	31-Mar-15	31-Jan-15
Operating Revenue	678794.00	1057.72	-275.99
Other Income	995.74	628.52	791.21
Gross Revenue	679789.74	1686.24	515.22
EBITDA	718.55	149.19	467.48
Finance Cost	201.08	85.58	234.88
Depreciation	291.67	40.57	2.05
Tax	178.98	-2.41	78.32
Net Profit	46.82	25.45	152.23
Equity Capital	2570.53	977.86	990.00
Promoter Stake %	72.68	56.06	27.27

 

Promoter, Holding & Cost

Though the Amrapali group was founded by the Ahmedabad-based Thakkar brothers Yashwant and Rashmikant, the senior members of the Thakkar family are not in the forefront now as they have faced penal action from the regulators for various commissions and omissions.  In order to avoid further disclosures and embarrassment, a younger member of the family, Chirag Thakkar (29), has been presented as the Keyman for the group’s last two public floats.

According to AFL’s offer document, the individual promoter, Chirag Thakkar, holds 17.06 lakh shares (17.23%) and the corporate promoter, AIL, is holding 9.94 lakh shares (10.04%). How and when did they acquire the holdings in the decade-old AFL? More than 16.5 lakh shares were `gifted’ free of cost to Chirag Thakkar only in March 2015 by the scam-tainted senior Thakkar brothers, Yashwant and Rashmikant, along with Kamlaben Thakkar. The balance 50000 shares were acquired by Chirag Thakkar from Sunny Thakkar (son of Rashmikant Thakkar) at a price of Rs 120. Thus in the post-IPO capital of Rs 13.44 cr, Chirag Thakkar would hold 12.7% at a cost of just Rs 2.94 a share!

How Amrapali Industries (AIL) who controls 7.39% in the post-IPO capital, became the corporate promoter of AFL is also remarkable. In October 2009 AFL issued 9,93,695 shares at Rs 100 each to  “Rakesh Patel, Banchmark Itly (Sub. of Business Investment Pvt Ltd), Omrim Securities Ltd and B D Biotech Enterprise Pvt. Ltd”. In November 2014, AFL filed an application under section 245(C) of the Income Tax Act,1961, before the Settlement Commission stating that the above shareholders were `benami’ and the beneficial owner of the said shares was AIL!

 

Promoters’ Notoriety

No promoter group would have indulged in as much manipulations as the Thakkars of Amrapali did in the capital market. Yashwant Thakkar was debarred from the market by SEBI in 2003-2005 for creating bogus subscription for the IPO of Elvis India Ltd. Thakkar brothers Yashwant and Rashmikant were also restrained by SEBI in 2004-2005 charging that they had acted in concert with the promoters of Growmore Solvents Ltd in committing irregularities in the public issue. Thakkar brothers faced SEBI action in 2002-2004 for conniving with promoters in allotting shares without receipt of consideration and in cornering shares in the public issue of Saket Extrusions Ltd. In 2009 ACFSL was fined by SEBI for violation of regulations in the matter of Adani Exports Ltd. In fact, ACFSL had been repeatedly fined by the stock exchange during the four years preceding its public issue and paid a penalty of Rs 21 lakh in fiscal 2012.

Monal Thakkar, promoter of ACFSL, Ritaben and Veenaben, close relatives of Thakkars had acted as financiers for IPO subscription of Yes Bank, IDFC and IL&FS through applications in fictitious names and became the ultimate beneficiaries in the scheme of cornering retail allotment and forking out big gain on sale immediately after listing. Since they had violated the regulations, SEBI issued directions to the Thakkars not to buy, sell and deal in securities market including IPOs, directly or indirectly. Finally, the Thakkars proposed a settlement under which Monal Thakkar paid Rs 29,17,331 towards disgorgement charges and Rs. 5,83,669 towards settlement charges, Ritaben Thakkar paid Rs 30,98,785 towards disgorgement charges and Rs. 6,20,215 towards settlement charges and Veenaben Thakkar paid Rs 3,52,242 towards disgorgement charges and Rs. 70,758 towards settlement charges.

How credible are the disclosures made by AFL? The offer document claims that AFL’s registered office situated at 19/20/21 Narayan Chambers, 3rd Floor, Ashram Road, Ahmedabad-380009 has been taken on lease for a period of 5 years commencing from December 01, 2010 from ACFSL as per agreement entered on December 01, 2010 between the parties. Ironically, ACFSL’s 2013 offer document had disclosed that all the offices through which ACFSL operated its business including registered and branch offices had been taken on leave and license basis from third parties! When ACFSL had leased the premises from third parties how AFL is claiming that ACFSL is the landlord of the property?

BSE’s Apathy

In March 1993, Thakkars floated public AIL. In the post-issue capital of Rs 5 cr, the promoters were to hold Rs 1.32 cr (26%). At the time of going public, the company had a turnover of about Rs 10 cr, largely from texturised yarn.  AIL tapped the market to set-up a project for manufacture of decorative laminates. According to the offer document dated February 9, 1993, the laminates project was to start production in June 1993. Twenty-two years have passed since AIL went public. The company’s turnover has galloped to nearly Rs 7000 cr. Its capital base has increased more than five-folds to Rs 25.71 cr and promoters’ stake has shot up to more than 73%. But, what did the public shareholders get? Not even peanuts! 

Name is ‘Industries’ but, AIL’s actual activity is commodity trading! What happened to its texturising and laminates business? No explanation made.  If it is a commodity trading company, how BSE has allowed it to retain the name ‘Industries’? When the Rs 10 paid up share was quoting only about Rs 15 in 2011, AIL went for a stock split, from the face value of Rs 10 to Rs 5 which the over-friendly BSE promptly obliged. The group companies do not reveal the cash flow statements in the annual reports or half-yearly results yet, BSE does not question them.

What sort of corporate governance does the Amrapali group practice and how credible are the hordes of corporate entities that have staked in the Amrapali companies can be gauged from the following: AFL had reportedly received 33,31,000 shares between 20/05/2010 to 01/10/2011 from 13 parties under public category for transfer but the transfer deeds executed between the transferors and transferees were incomplete!

Of AFL’s present equity of 99 lakh shares, public holding is put at 72 lakh shares (72.72%) of which 65.42 lakh (66.1%) is held by 14 corporate bodies whose management identity is suspect. The largest chunk of the public holding (14.1 lakh shares or 14.24%) is held by the BSE-listed Yantra Natural Resources Ltd. This Hyderabad-registered company, whose auditors are in Mumbai, has an ultra large equity capital of Rs 628 cr. Interestingly, Yantra has no promoter stake and the entire equity is held by the public which includes 267 little known corporate bodies who collectively hold 88%! Surprisingly, BSE has allowed Yantra to split its shares from Rs 10 to 1 and the share is currently languishing at around 10 paise!

Another BSE listed company, Sanguine Media Ltd, holds 10.10 lakh shares (10.2%) in AFL under public category. This Chennai-registered company, whose Managing Director is Kumar Raichand Madan, too has no promoters and its entire Rs 114 cr equity is held by public. Sanguine’s public shareholders include 160 body corporates who collectively hold 72%. Notwithstanding Sanguine’s pathetic record, BSE has allowed its shares to be split from Rs 10 to 1 and currently the share is quoted at just 6 paise. Incidentally, Diresh Uttamchand Munver who is a Non-Executive Independent Director in Sanguine is the Managing Director of Yantra Natural!  

Another major ‘public shareholder’ of AFL, Surat-registered Aadhar Ventures Ltd, who holds 9.65 lakh (9.75%), is also a listed company on the BSE. This so-called NBFC having an equity base of Rs 157 cr is also held by the public as high as 99%! Aadhar too has split its share from Rs 10 to Rs 1 which is currently available at Rs 15 paise. Notably, Jils Raichand Madan is the Managing Director of Aadhar Ventures and Jyoti Munver is a Non-Executive Independent Director.

BSE listed Prabhav Industries Ltd holds 8.55 lakh shares (8.64%) under public category in AFL. Prabhav too has no identifiable promoter and more than 99% of its equity of Rs 46 cr is said to be held by public. Prabhav’s Rs 10 paid-up share is currently quoting at just Rs 1.20. Interestingly, Ami Jigar Motta, who is a Non-Executive Independent Director in Sanguine, is also holding the same designation in Prabhav! 

Vapi-based Specility Papers Ltd, another BSE listed company in which public is said to be holding 89% of its Rs 156 cr equity, is holding 8.02 lakh shares (8.1%) in AFL. Specility’s Rs 10 share is currently quoting at Re 1! Another BSE listed 99% public owned company which has staked 3.2% in AFL is Ahmedabad-registered Mahan Industries Ltd. This Rs 10 paid-up share is currently quoted around 50 paise! If the above instances are any indication, there could be a big scam indulged in by the so called 100% public owned BSE listed entities who have enlarged their capital base without earnings to support.  

AFL claims the 2.55 lakh shares (2.58%) held by Avichal Reality Pvt Ltd are public category. But, the offer document claims that Avichal is a group company of the promoters! How a controversial group like Amrapali and its ‘crony public shareholders’ are entertained by BSE is indeed a mystery.

 

BSE’s Quality vs Quantity

Last week, BSE made a big noise about the 100^th listing on its SME platform. Of course, it has attracted 105 SMEs as compared to just 7 on NSE since the advent of SME platform in 2012. But, what’s the quality of the SMEs admitted by BSE? Of the 103 SMEs, as many as 68 are not traded, and of the 35 traded, 10 are quoting below the offer price. If BSE were to admit listing of habitual offenders like the Amrapali group, how will it instill confidence in the minds of retail investors? And if proven crooks can tap the market again and again, why do we require a market regulator?     

 

Corrigendum to the Article

The IPO of Amrapali Fincap opened on July 20 and closed on July 22. The company came out with an Addendum-cum-Corrigendum on 29^th July 2015 stating that there was an error in the risk factor appearing on page no. 10 of the prospectus and prominent note no. 6 on page no. 17. As per the correction the average cost of acquisition of Chirag Thakkar was Rs 119.95 instead of Rs 2.94.

Further it was stated that under Capital Structure appearing on page no. 36 & 44, the table appearing under the note no. 12 in the last column providing the details of ‘Amount per Share’ should be read as Rs 120 instead of ‘Gift’ for the serial no.1,2 & 3.