Canada Firm Shakes Up Indian Stock Research

Reports by Veritas Investment Research has shaken
up Indian Stock Research. Shown, the Bombay Stock
Exchange in Mumbai, Aug. 8, 2011

Canadian equity research firm Veritas Investment Research has lately shaken up the usually complacent world of stock research in India by publishing several reports that question corporate governance at large Indian companies.

Stock analysts are sometimes loathe to write negative reports on companies in the clubby world of Indian business. Veritas, however, has written a number of scathing reports about Indian companies, making it a slew of enemies along the way.

The latest is the Indiabulls Group, a Mumbai-based company which itself began in broking but branched out to real estate and other business.

Indiabulls this week filed a police complaint against Veritas following a report from the research firm advising investors to sell stocks of Indiabulls-owned companies. Veritas alleged that disclosures at group companies Indiabulls Real Estate and Indiabulls Power are unreliable, and that “institutions and individuals should Sell all Indiabulls group stocks on the principle that corporate governance has been sacrificed to enrich the controlling shareholders.” Stocks of these and other group companies, including Indiabulls Financial Services, fell promptly thereafter.

Indiabulls has refuted these allegations, saying the Veritas report is “mala fide” and carries “gross incorrect data,” according to a regulatory filing on Thursday. Indiabulls has filed a police complaint against Veritas’ Canada-based executive vice president and head of research Neeraj Monga and analyst Nitin Mangal, the authors of the report, it said in its regulatory filing. Indiabulls alleges that Mr. Monga demanded money from the group for holding back the report.

Gagan Banga, a group spokesman and chief executive of Indiabulls Financial Services, said the complaint filed by the group alleged that Veritas intentionally stated wrong facts in its report. He also mentioned that the company plans to approach the Securities and Exchange Board of India, the capital markets regulator, to investigate the matter.

Mr. Monga and Veritas officials, based in Toronto, couldn’t be reached for comment. Mr. Monga told cable news channel ETNOW that information in the report was publicly available. “We have looked at publicly filed financial statement of Indiabulls groups entities over last five years, including 57 group companies including some private companies of controlling share holders,” Mr Monga said.

Mr. Monga has previously said that their reports are based on publicly available data, such as the company’s regulatory filings.

Veritas, which is not affiliated to a big bank or financial services company, prides itself on making bold calls. Its website says its clients include some of North America’s largest institutional and pension fund managers.

The Canadian company is no stranger to controversy in India, where it has raised questions about corporate governance at well-known firms.

Earlier this year, it issued a “Sell” call on Reliance Communications, saying the firm “is a house of cards.” Veritas said in its report that RCom’s accounting policies are “whimsical” and don’t provide a clear picture of the underlying operating and business trends, and added that the firm’s governance practices were “sub-optimal.” Reliance Communications said Veritas’ report was “full of factual inaccuracies and baseless allegations” and that its “report lacks any credibility and is mala fide.”

In March, it said DLF Ltd, India’s biggest realty company by sales, is a “A CRUMBLING EDIFICE,” adding that claims made by the management about its ability to execute projects were fanciful.

Some analysts find Veritas’ aggressive approach a refreshing change in India’s stock research world, where most analysts tend to agree with each other. “Veritas has barged in with research that has a strong emperor-has-no-clothes attitude to it,” said Dhirendra Kumar, chief executive of fund research firm Value Research India in a newspaper column earlier this year.

“The emperors in question are not just the actual target of the reports but also the entire activity of stock research in India,” wrote Mr. Kumar.

Analysts broadly agree that corporate governance at Indian companies needs to improve.

Mr. R. Jayakumar, of Institutional Investor Advisory Services, or IIAS, said analysts should verify data with the companies. But companies must give detailed explanations to investors, especially in cases where the management’s business practices or intentions are in question. He declined to comment specifically on Indiabulls Group.

In recent times, stocks of Indian companies that Veritas has written about have witnessed sharp falls in value, at least over the short term. The volatile movement in these stocks has mostly happened after Veritas’ observations are reported by financial media, including television news channels.

On Thursday, Indiabulls Real Estate stock closed provisionally up 0.8% at 54.85 rupees, Indiabulls Power was down 2.4% to 12.70 rupees, and Indiabulls Financial rose 0.8% to 211.45 rupees.

Source: blogs.wsj.com

Veritas ‘sell’ report: IndiaBulls files complaint

Real estate-to-power sector major IndiaBulls filed a police complaint against Canadian investment research firm Veritas in Gurgaon, Haryana, today against their report which alleged serious irregularities committed by the group.

The allegations had sent stock prices of IndiaBulls group companies crashing during the day. The stocks of IndiaBulls Real Estate, IndiaBulls Power and Indiabulls Financial Services later recovered to close with a fall of 2.4 per cent, 3.2 per cent and 0.8 per cent, respectively.

Group spokesperson Gagan Banga justified the police complaint against Veritas “as the report has been brought out with mala fide intentions of profiteering and market manipulation”.

But co-author of the Veritas report, Neeraj Monga, in an email, told The Indian Express, “(IndiaBulls) management had no qualms about profiting at the expense of public shareholders while redirecting funds to privately owned IIC and its subsidiaries. Our report proves that conclusively”. He also said, “Any attempt at filing a police complaint against providers of unbiased independent advice in the interest of the masses of India that invest hard earned savings in the Indian capital market, is an attempt at maintaining the status quo of India as a third world emerging market.”

The report titled ‘Bilking India’ alleged that the sole purpose of some of the group companies is to cheat retail and institutional investors for the benefit of select insiders. The report suggested investors should sell all IndiaBulls group stocks for lack of disclosure and corporate governance.

“Institutions and individuals should sell all IndiaBulls group stocks on the principle that corporate governance has been sacrificed to enrich the controlling shareholders,” said the Veritas report alleging that the disclosures by IndiaBulls Real Estate and IndiaBulls Power were unreliable.

The research firm has in recent months come out with tough reports on several companies including Reliance Industries, Reliance Communications, DLF and Kingfisher.

In their rejoinder IndiaBulls said there was intentional error made by Veritas on basic factual data that it claimed has resulted into financial loss in the stock market today for its shareholders.

The report dated August 1, 2012, raises questions on the merger of Indiabulls Infrastructure Development with IndiaBulls Power and says that it was a means to transfer the value from public shareholders to a select few.

Among other allegations made in the Veritas report are allegations that in FY’12, Indiabulls Financial Services recognised income of Rs 120 crore on its profit and loss statement for loan extended to its Employee Welfare Trust (EWT) even as the Trust is incapable of servicing the loan. It also alleges that inclusion of interest income from there resulted in increase in profit before tax for FY’12 by 33 per cent. Banga said, “The figure of NII (net interest income) arising out of EWT is Rs 18 crore , which is less than 1 per cent of total NII of Rs 1,866 crore for the company. The same being projected as 33 per cent of profit before tax in headlines demonstrates mala fide intentions under Indian Penal Code.”

Source: www.indianexpress.com

Indiabulls seeks legal action against Veritas as shares fall

Mumbai: Shares of Indiabulls firms Wednesday fell sharply after Canada-based Veritas in a report alleged serious irregularities at the group, which in turn termed the charges as "malafide and fabricated" and said it has filed a criminal case against the research firm.

"The Vertias report is 100 percent incorrect and fabricated... This is taking gullible investors for a ride by selectively leaking sensitive information, and then making money by selling such report.

"We have filed a criminal complaint against the agency as well as its author with the Economic Offence Wing of the Mumbai Police presenting the facts in the case file," Indiabulls Financial Services CEO Gagan Banga said.

Shares of Indiabulls Real Estate fell over 12 percent, Indiabulls Financial Services by 11 percent, Indiabulls Power by 11.8 percent and Indiabulls Securities by five percent.

The stocks went into a tailspin after a Veritas report about Indiabulls surfaced at the broker terminals and in dealing rooms here this morning, wherein promoters of the group have been accused of sacrificing corporate governance to enrich themselves, besides other allegations.

Stating that nobody from Veritas has contacted the company, either before writing the report or before releasing it to the select brokers, Banga said, "their modus-operandi is to selectively leak the report and make money by selling it later. It's a brilliant (way) to hammer some stocks and make money out of that."

Canada-based Veritas had hogged the limelight in recent months with its equally damning reports about other Indian entities -- Reliance groups, DLF and Kingfisher.

When asked whether the research firm contacted Indiabulls for its research report, Veritas' Neeraj Monga, who has authored most of these reports, said in an emailed reply that it depended on publicly available information.

Asked whether Veritas had heard anything from Indiabulls after the report was published, Monga said, "based on the media reports, I believe we will be hearing from them."

Earlier in the day, Indiabulls termed the report "as false and factually incorrect data aimed at creating sensation and entice people for benefitting through trading, for the sole purpose of selling their research reports for money."

Claiming that the report contained intentional error on basic factual data, which is resulting into loss for thousands of shareholders, Indiabulls said the erroneous figures demonstrate "the malafide intentions and criminal actions under the IPC. We firmly believe that this is not an oversight but an intentional act for profiteering."

In a detailed rebuttal of the points made in report, Indiabulls said, "the allegations made are factually incorrect and have ignored disclosures in public domain made through the annual reports of FY11 and FY12, which have also been circulated to all shareholders."

Veritas report said public disclosures made by IndiaBulls Real Estate and IndiaBulls Power are unreliable and the sole purpose of Indiabulls Real Estate "is to bulk institutional and retail investors for the benefit of select insiders."

The report further said the controlling shareholders of "are running the organisation as a piggybank, while proclaiming propriety and espousing credibility. The association of reputed institutions, individuals and organisations with the company is vexing to say the least."

Veritas further alleged that the institutions and individual investors should exit all Indiabulls group stocks "on the principle that corporate governance has been sacrificed to enrich the controlling shareholders."

However, the plunge in Indiabulls group stocks was limited to four companies as shares of Indiabulls Wholesale Services and Indiabulls Infrastructure and Power were trading with gains.

Veritas claimed that it analysed 57 group companies including private companies of controlling shareholders, 201 financial and legal documents including annual reports, annual returns, various schemes of arrangements filed in local courts, exchange filings, annexure details etc, for its report.

Source: zeenews.india.com