Bangalore: Three weeks after first reporting that five of the seven external directors on the board of biotech firm Avesthagen Ltd have resigned since July 2007, Mint has discovered that more top executives and directors have exited the biotech firm, and its latest audited balance sheet shows signs of financial strain.
Some of the senior executives and directors to have left the company are: Samaresh Parida, chief operating officer; J. Rajagopalan, chief financial officer; Sandip Dang, chief executive of Avesta Good Earth Foods Pvt. Ltd, one of the 12 subsidiaries of Avesthagen; Deepak Mullick, director of the bio-agriculture division; Narayan Seshadri, additional director from the private equity firm Halcyon Group; Emmanuel Rougier, director from the French seed firm Groupe Limagrain; and Jochen Ebert, director from the French food and dairy company Groupe Danone. Danone and Limagrain have invested in Avesthagen.
Among the directors, Seshadri, Rougier and Ebert left in December 2008; Mullick left in Februrary 2008.
Also See Facing Exodus (PDF)
The company website, where new hires and appointments are announced, does not mention replacements. Mint could not independently verify whether those who quit have been replaced by new hires or through internal promotions. Two new directors were inducted into the Avesthagen board in February—David Atkinson, an agri-biotech consultant and managing director of Twenty Two North Llc. in Santa Barbara, California, and N.K. Ganguly, former director general of the Indian Council of Medical Research, New Delhi.
Avesthagen was set up in 1998 and has since received venture capital funding from many investors, including ICICI Venture Funds Management Co. Ltd and Tata Industries Ltd.
ICICI Venture, one of the earliest investors in the company, withdrew its director K. Ravindra “with immediate effect on 18 December 2008” after which the investment firm has had no representative on the Avesthagen board. An email query to ICICI on this on 9 March remained unanswered. ICICI invested $1.5 million (Rs7.69 crore today) in 2001, when the company raised its first round of venture capital.
Requests to Avesthagen seeking reasons for these rapid-fire exits got a clipped email response from its founder and chairman, Villoo Morawala-Patell: “Avesthagen is an unlisted company and therefore information is private. All is well with the company and it is making steady progress.”
However, the latest balance sheet of the company available at the Bangalore office of the ministry of corporate affairs shows that Avesthagen’s financials have deteriorated.
The firm was in the red in the last fiscal year: it incurred a net loss of Rs13.8 crore on a turnover of Rs41.63 crore for the year 2007-08 compared to a net profit of Rs4.01 crore on a turnover of Rs34.08 crore in 2006-07. Also, in the same year, secured loans that are given against the assets of the company went up by 31%. Interest costs nearly doubled.
Costs have shot up, and measures to control them seem to have gone awry, which some ex-directors cite as reasons for concern when they were in office. Avesthagen’s employee costs at least doubled and cost of sales went up by over 80% in a year when revenues increased just 22%. Moreover, the company lent Rs59.86 crore to its 12 subsidiaries, including Rs1 crore as a housing loan to one of its directors, Morawala-Patell.
The auditors have expressed reservations about Avesthagen’s balance sheet, as shown in the so-called Form 23 AC that companies have to mandatorily file every year with the Registrar of Companies. When asked about this, the company chose not to reply.
Clearly, Avesthagen’s short-term financial position appears strained. Ironically, this happened in a year (2008) when the company was all set to raise Rs600 crore from the stock market, but had to pull back because of the market meltdown.
Some former directors that Mint spoke to cited “corporate governance and management issues” for their resignation. “Apparently more Satyams are bound to surface after (stock market regulator) Sebi (Securities and Exchange Board of India) starts its investigations into 100 other companies,” said Mullick, now chairman of an agri-business consultancy AgVantage in Gurgaon. Morawala-Patell had told Mint in February that there were no governance issues. “With three auditors—Deloitte and Touche Llp, Ernst and Young, Agarwal and Italia—overseeing Avesthagen, it is the most over-audited company.”
Another director in Mumbai, who resigned in November but doesn’t want to be identified, said: “Besides management issues”, he was “worried by the non-payment of huge statutory dues”.
One of the first directors to quit in July 2007, UK-based Simon Best, said, “I left the board because I disagreed with a strategic investment decision, not because of concerns about governance at the time. It’s simply inappropriate for me to comment on Avesthagen’s current circumstances from an out-of-date perspective.”
Though the company ducked questions on whether it was paying its creditors and staff, some staff members, ex-directors and competitors, who have been receiving applications from Avesthagen employees looking for jobs, say the company hasn’t paid salaries in the last few months.
As the overall financial environment gets tougher, it remains to be seen how the company manages to fix its financial crisis. “It’s really sad that the company is in such a state today…it’s a fantastic scientific company, but very poorly managed,” said an ex-director in Mumbai.