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SEBI orders forensic audit into Rabo Equity-backed Prabhat Dairy’s books
Photo Credit: Reuters

In a jolt to Prabhat Dairy Ltd, which is planning to go private, the Securities and Exchange Board of India has ordered a forensic audit into the financials of the company purportedly on the insistence of a few minority shareholders.

The company said in a stock market disclosure that SEBI has appointed Grant Thornton India LLP as the forensic auditor to check the financial statements of the company for the years through March 2019 and March 2020.

The Economic Times reported earlier in the day, citing people it didn’t name, that a few investors had complained about the deal between French dairy company Groupe Lactalis and Prabhat Dairy last year.

The investors alleged that the company had not properly shown the sale proceeds on its balance sheet, to keep the book value low so that its shares could be delisted at a much lower price than the actual value.

In September last year, Prabhat Dairy said it planned to delist its shares from stock exchanges, just four years after going public. It had said then it planned to delist because it no longer operates in the dairy business.

Prabhat Dairy had agreed to sell its milk products business housed under unit Sunfresh Agro Industries Pvt. Ltd to Lactalis for Rs 1,700 crore ($239 million then) in January last year. 

When contacted, Lactalis India CEO Rahul Kumar said the audit will hardly have any impact on Sunfresh Agro.

“The audit may have been ordered to see how they have distributed the money among shareholders. Possibly some of them were not happy with the sale process. However, it doesn’t affect our acquisition,” said Kumar.

He also said that Lactalis is investing in Sunfresh Agro to modernise its cheese plant and launch other products.

“The focus is to introduce the brand more into business-to-consumer (B2C) channels,” he added.

If the delisting goes through it would provide an opportunity to private equity firm Rabo Equity Advisors Pvt. Ltd to exit Prabhat Dairy.

When asked for comment on the audit, Rabo Equity managing director Rajesh Srivastava said: “No special issue for us as it relates to all minority shareholders.”

Rabo had invested Rs 80 crore in the company during 2012-2013 along with French investor Proparco, which had put in Rs 60 crore at the same time.

Rabo held a 14.37% stake in the company at the end of June 2019. This is currently worth Rs 109.70 crore. Proparco held an 8.68% stake, which is worth Rs 62.86 crore at current market prices.

In September 2015, Prabhat Dairy raised around $48 million when it went public with both Rabo and Proparco making partial exits. TVS Capital had invested in the company during the IPO.

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