Every time a Veritas research report hits at an Indian listed company, its stock tumbles. Wednesday was no different, when the Toronto-based research firm hit out at Indiabulls Real Estate (IBREL), the listed real estate company from Mumbai, the stock tanked up to 10 per cent during the market hours.

The report authored by Neeraj Monga and Nitin Mongal flayed the company for ‘bilking’ its investors and it has specifically advised the stock holders to undertake legal actions to ‘claw back the ill-gotten gains’ of the controlling share holders. It has finally said that, “We wouldn’t buy IBREL and other related group entities at any price – unless new management is put in charge and the financials cleansed of malfeasance.”

The report has specifically hit at the company for benefitting only the controlling share holders and questions the corporate governance of the company, wiping off value of public shareholders due to the merger of Indiabulls Infrastructure Development Limited (IIDL) with IndiaBulls Power Limited.

The report states, “We believe that disclosures at IndiaBulls Real Estate Limited (IBREL) and IndiaBulls Power Limited (IBPOW) are unreliable and that the sole purpose of IBREL is to bilk institutional and retail investors for the benefit of select insiders. The controlling shareholders (CS) are running the organisation as a piggybank, while proclaiming propriety and espousing credibility.”

It also said that two promoter-owned entities IIC Ltd (IIC) and IINFC Ltd (IINFC) are flow-through entities and have recorded profits of nearly Rs 130 crore in a year’s time.

“They also serve as a conduit for the controlling shareholders to siphon funds via loans and advances from IBREL and IBPOW into other privately-owned entities, which then subscribe to warrants and/or buy shares of IndiaBulls Financial Services, (IBULL), IBREL and, IBPOW from the open market, thereby boosting the stake of the CS in the public entities. Moreover, given that warrants amounting to $105.8 million in IBREL and IBPOW have been forfeited by management since FY08, some of the loans and advances to these entities routed through IIC and IINFC are a write-off, thereby calling into question the recoverability of loans and advances on the books of IBREL and IBPOW.”

One of the major contentions in the report is that IBPOW does not have funds to meet its capital commitments to complete its projects and therefore it is dependent on other financial institutions for raising money.

“IBREL doesn’t have the track record of delivering on its promises and is cheating institutional and retail investors. 22% of the book equity of IBULL is exposed to the Employees’ Welfare Trust, which doesn’t have the cash flow to service its debt, thereby calling into question the credibility of IBULL’s loans and advances.”

The realtor tried to hit back at the report on the employee welfare trust front, but it did not say anything about other questions raised by Veritas.

IBREL said, “In our opinion such intentional error on basic factual data is resulting into loss for thousands of shareholders. The figure of NII arising out of EWT is Rs 18 crore , which is less than 1% of total NII of Rs 1,866 crore for the company. The same being projected as 33% of profit before tax in headlines, demonstrates the malafide intentions and criminal actions under Indian Penal Code. We firmly believe that this is not an oversight but an intentional act for profiteering.”

Interestingly IBREL recorded a bulk trade of 41.60 lakh shares at Rs 54.12 per share. The stock closed at Rs 54.40 per share at the end of the day, it hit day’s low at Rs 49 per share.

IBREL, which has recently undergone managerial changes, has moved Vipul Bansal to Indiabulls Properties Investment Trust Singapore and Narendra Gehlaut, the other joint managing director of the company has been re-designated as the managing director to look after the entire operations of the company.

IBREL also clarified during the day that the value of stocks in EWT, have accrued a positive return, for the total employee workforce of 4,400 people of an amount of Rs 45 crore based on closing price of Rs 210 of IBFSL yesterday(7th August,2012).

The last report that Veritas had come up with was on India’s largest realtor according to market capitalisation DLF, which it had valued at Rs 100 per share on a best case scenario (read here) Veritas is known for lashing out against the King of good times’ airline business, Kingfisher Airlines, which is well on its way to sell off assets to pay off debt to its bankers. It has also come out with reports on Reliance Industries and Reliance Communications.

Indiabulls has filed a complaint with the police against the "malafide" Veritas report alleging that one of the authors had demanded money to hold back the report, the company informed the Bombay Stock Exchange on Thursday.

(Edited by Prem Udayabhanu)

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