Manpasand Beverages comes under Sebi, MCA scrutiny
Manpasand Beverages’ share price has been falling since its auditor Deloitte Haskins quit right before Q4 results which has been deferred since
Mumbai/New Delhi: The corporate affairs ministry and the markets regulator have begun separate investigations into alleged non-disclosures and possible accounting lapses at Manpasand Beverages Ltd, two people familiar with the matter said.
The fruit juice maker has seen its stock plunge ever since its statutory auditor of eight years quit abruptly a week ago, just ahead of its quarterly earnings release which has since been deferred.
On 27 May, Manpasand Beverages said Deloitte Haskins and Sells resigned as its statutory auditor. The auditor’s letter to the company said it would not be able to complete the audit of financial statements for 2017-18 since Manpasand had not provided “significant information” sought by it.
“The markets regulator (Securities and Exchange Board of India, or Sebi) is examining the company for alleged disclosure lapses during fundraising in its annual reports and governance lapses if any. Sebi is also examining whether Manpasand’s book of accounts is reflecting a true picture,” one of the two people cited above said on condition of anonymity.
According to the second executive, the ministry of corporate affairs (MCA) is probing the issue under Section 143(12) of the Companies Act, which requires auditors to report to the government if they suspect any wrongdoing.
A Manpasand spokesperson dismissed claims of any wrongdoing and said the company has not received any query from either Sebi or MCA.
“Deloitte has written to MCA saying that despite a month of repeated reminders, it was not able to get the documents and other evidence which could support the costs and revenues and capital expenditure at the company,” the second person said.
Deloitte declined to disclose what information it had sought from the Manpasand management, although an executive at the auditor said Deloitte had written to the management “twice over the last month” before resigning, but did not get any response.
A spokesperson for Deloitte declined to offer a comment, citing client confidentially.
In response, Manpasand director Abhishek Singh said: “We have been providing all required information as and when required by them. While there could have been some delays, we have never denied sharing any information with them ever.”
One of the alleged lapses is the non-disclosure by Manpasand of a business run by a promoter’s family member when the company’s draft red herring prospectus came out in November 2014, and again when the company raised Rs500 crore through a qualified institutional placement in September 2016.
Sebi requires all companies to disclose at the time of going public or when raising any funds if any of the promoter’s family members have any interests in competing businesses. This ensures that investors are aware of any issues of conflict of interest.
Rather, Manpasand’s DRHP in November 2014 stated: “The Promoter Group of Company does not include Mr Satyendra Singh and Mr Gyanendra Singh, brothers of Mr Dhirendra Singh and Ms Renu Singh, sister of Ms Sushma Singh, or any entity or entities in which Mr Satyendra Singh, Mr Gyanendra Singh or Ms Renu Singh may have an interest since we have been unable to obtain any information pertaining to themselves or any such entities.”
During the time of Manpasand’s DRHP, both Satyendra Singh and Renu Singh were (and continue to be now) directors of Hansraj Agro Fresh, which was registered in August 2014, according to filings made to MCA. Hansraj makes the same products as Manpasand, thereby making it a perfect case of non-disclosure of information which merits a probe, according to Amit Mantri of investment firm 2Point2 Capital. Mantri first flagged this non-disclosure in a note in December 2016.
Nitin Mangal, an independent research analyst, in a note written last month, also questioned the claims of company’s market share in the fruit juice market and the dichotomy in the company’s gross margin and Ebitda margin.
Manpasand shares dropped 55% from Rs431 to Rs192.90 per share from 27 May until end of trade on 4 June. Venture capital investor SAIF Partners holds 17% stake in Manpasand and is the single largest public shareholder in Manpasand. Motilal Oswal Most Focused Fund with 5.5%, SBI Magnum Multiplier Fund with 4.4%, ICICI Prudential Midcap with 1.04% and three Nomura funds with 4.8% are other big public shareholders.