Indiabulls Stocks Tumble After Veritas Report

“Sell all the IndiaBulls’ stocks.” That is what the Canadian research firm Veritas has said in a recent devastating report on the IndiaBulls Group. Neeraj Monga, analyst of Veritas, has alleged that all the disclosures of IndiaBulls Real Estate (IBREL) are unreliable and that the sole purpose of the IBREL is to milk the institutional and retail investors.

Veritas analysed annual reports, legal and other financial documents of a total of 57 group companies and has come to the conclusion that any valuation of any of these entities is bound to be erroneous. Veritas has also said that the merger of IndiaBulls Infrastructure Development Limited (IIDL) with IndiaBulls Power (IIBPOW) is a means of transferring value from the public shareholders of IndiaBulls Power to a select few insiders. Veritas has found that the fair value of IIDL was increased by 8.54 times at the time of the merger. This transaction yielded returns of 4.58 times to the few private parties who held the stocks of IIDL.

Veritas has said that the controlling shareholders of IBREL promoted two flow-through entities, namely IIC and IINFC Limited. IIC is owned by the controlling shareholders of IBREL while IINFC is a 100 per cent subsidiary of IIC. Both of these entities are engaged by the IndiaBulls Group. Both IIC and IINFC reported profit in FY11 which, according to Veritas, is due to the inflated project costs. This has caused erosion in the stocks held by public shareholders of IndiaBulls while the controlling shareholders witnessed rise in their wealth as the entities floated by them reported a rise in the profits.

A more serious allegation is that the funds from IBREL and IBPOW are being redirected from IIC to buy a stake in IndiaBulls Financial Services. Veritas has also said that some of the loans and advances from the IBREL and IBPOW to IIC are write-offs and has questioned the recoverability of these loans.

Hit by these allegations, the IndiaBulls’ management has called this report factually incorrect and has said that it will take action against it. The shares of the IndiaBulls Group companies tumbled by 2-3 per cent at the time of today’s closing. The sleeping stocks saw some recovery after the company came up with their explanation. Veritas has previously shaken companies like Reliance Communications, DLF and Kingfisher Airlines.