Which stocks fell the most due to corporate scandals in past one year?
Shares of many companies took a beating in the past year due to numerous scandals that rocked corporate India. We take a look at the bad news and how it impacted share prices of these companies. We also tell you how to protect yourself from such ...
1. DHFL dips after whiff of Rs 31,000 crore fraud
The housing finance company is grappling with a Rs 31,000 crore fraud. According to a report in Cobrapost in January 2019, the promoters of DHFL— Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan— and associate companies have siphoned off money from bank loans of Rs 97,000 crore through layers of shell companies.
A forensic audit separately done by KPMG has also found massive fund diversion by the promoters. In addition, the company has defaulted on debt repayments and stopped payment of bonds.
DHFL share prices on a free fall
In the past one year, DHFL lost nearly 90% of its market value from Rs 7,233 crore in November 2018 to Rs 731 crore in November 2019. Rs 10,000 invested in DHFL in November 2018 is worth just Rs 1,010 in November 2019.
2. Hidden NPAs come back to haunt Yes Bank
Yes Bank had been underreporting its non-performing assets (NPAs) before it was detected by RBI during a asset quality review in 2015.
During the review, banks were forced to report loan divergences (the difference between the RBI’s assessment of bad loans and the one reported by the banks) in the quarterly results. For Yes Bank, the divergence widened to $1 billion in 2017. After RBI refused to approve a new term to founder Rana Kapoor to helm the bank, it reported a first-ever loss in the March 2019 quarter under new CEO Ravneet Gill.
The bank's significant exposure to the crisis-ridden finance and real estate sectors fuelled its NPAs. Moody has warned Yes Bank of credit rating cut due to its poor performance in the September 2019 quarter. It reported declining income and increased operating expenses.
Yes Bank's NPA jumped over 2.5 times whereas its RoA declined
The bank has reported losses in two quarters in 2019-20
Quarterly numbers (in Rs crore)
|PAT (Rs crore)||-1,506.64||113.76||-600.8|
The stock tanked over 39% in April 2019. In the past one year, the bank has lost over Rs 32,000 crore of its market value. Rs 10,000 invested in Yes Bank in November 2018 is worth Rs 3,525 in November 2019, a loss of 65%.
3. Indiabulls Housing Fin promoter in the dock
The mortgage lender regulated by National Housing Bank provides loans for housing finance. In June 2019, a shareholder filed a plea in the Supreme Court accusing Sameer Gehlaut, the Founder and Chairman of Indiabulls Group of financial misconduct and money laundering to the tune of Rs 98,000 crore.
It was alleged that the founder created multiple shell companies to which Indiabulls Housing Finance loaned huge sums of money under bogus and non-existent pretexts.
Falling income, EPS has dented the share price
In the past year, the company has lost over Rs 25,000 crore of its market cap. Rs 10,000 invested in Indiabulls Housing finance in November 2018 is worth Rs 2,912 in November 2019, a loss of over 79%.
4. Manpasand Beverages caught in GST fraud
The beverage company is primarily engaged in manufacturing food drink products. In May 2019, the Goods and Services Tax (GST) department arrested the company’s top management for a Rs 40 crore fraud. The Central GST Commissionerate Vadodara-II said investigations unearthed a network of more than 30 fake units across the country that were used by Manpasand Beverages to commit fraud by availing illegal credit.
Value eroded by 94% in one year
|7-Nov-18||8-Nov-19||Decline (Rs crore)|
|Market cap (Rs crore)||1,063.40||68.3||-995.02|
Large investors reduced stakes substantially
The stock tanked over 75% between 24 May and 20 June 2019. Between November 2018 and November 2019, the market cap eroded by over 93%. Rs 10,000 invested in Manpasand Beverages in November 2018 is worth Rs 642 in November 2019.
5. CG Power: Chairman accountable for irregularities
CG Power is an engineering conglomerate with diverse portfolio of products, solutions and services for power and industrial equipment. In August 2019, the company’s board declared that it has discovered significant accounting irregularities, including suspected transactions that have led to an understatement of the company’s liabilities and advances to related and unrelated parties by hundreds of crores of rupees. It is suspected that the transactions were carried out by key officials including the Chairman, Gautam Thapar.
The stock tanked 51% between 19 August 2019 and 27 August 2019. Over 55% of the market cap was eroded over the past one year. Rs 10,000 invested in November 2018 is worth Rs 4,470 in November 2019.
6. CCD's cup of debt overflows
Cafe Coffee Day owns and operates cafes in India. Its liabilities doubled to over Rs 5,200 crore in March 2019 and the unlisted ventures for realty and hospitality showed similar debt levels. The company is facing severe liquidity crunch and the founder is facing trouble raising fresh debt. In addition, there have been regulatory issues relating to the payment of income tax.
Declining operating & net profit growth
Growth based on unaudited standalone numbers
The stock tanked after the death of Chairman V.G. Siddhartha. Between 30 July 2019 and 16 August 2019, the stock tanked by 59%. In the past one year, the stock has lost nearly 86% of its market value. Rs 10,000 invested in in November 2018 is worth Rs 1,408 in November 2019.
7. HDIL: The company that triggered PMC Bank crisis
The promoters of the real estate development company—Rakesh Wadhawan and Sarang Wadhawan allegedly siphoned funds from Punjab & Maharashtra Cooperative Bank by using overdraft facilities. The money was disguised as loan accounts by bank officials. The value of such loans are more than Rs 4,300 crore.
The company is facing difficult times due to rising debt over the past few years and the latest scam has further dented the stock price. In the past one year, the company lost over 91% of its market value. Rs 10,000 invested in HDIL in November 2018 is worth Rs 925 in November 2019.
8. Hint of financial fraud in Unitech
Real estate company Unitech is mired in allegations of mismanagement and siphoning of funds by directors and promoters of the company. In July 2019, it is alleged that Rs 1,600 crore was siphoned off abroad. The Supreme Court-appointed auditor Grant Thornton highlighted grave irregularities in its preliminary report. Recently, the Noida Authority canceled the allotment of Unitech’s group housing property over non-payment of dues.
Financials indicate worsening performance
The stock price of Unitech has been in a freefall over the past few years. In the past one year, the company lost close to 75% of its market value. Rs 10,000 invested in Unitech in November 2018 is worth Rs 2,521 in November 2019.
9. Credit rating of Eros International Media cut
The share price of the film production and distribution company has been declining since June 2019 after CARE rating agency cuts its creditworthiness due to likely delays or defaults in serving debt. In addition, a US-based forensic financial research firm accused its promoters of engaging in irregular related party transactions which appear to hide receivables.
Deteriorating financial performance has dragged down the share price
Despite clarifications from the company’s management, the stock price declined by over 85% between June 2019 and August 2019. In the past one year, the company lost 85% of its market cap. Rs 10,000 invested in Eros in November 2018 is worth Rs 1,486 in November 2019.
10. Sintex Industries
Rising debt, weakening demand and depleting cash weakened the prospects of the textile manufacturing company. Moreover, promoters have not converted warrants into equity which indicates lack of confidence in the business. In June 2019, the company defaulted on its non-convertible debentures.
Over 95% of the market cap eroded in the past year. Rs 10,000 invested in Sintex Industries in November 2018 is worth Rs 461 in November 2019.
11. Ballarpur Industries
The company suffered due to the increased supply of paper from Indonesian and Chinese companies, which were seeking more sales in India after the US imposed import duties. It led to working capital stress and the company defaulted on its debt obligations.
The company has lost 92% of its market value in the past year. Rs 10,000 invested in Ballarpur Industries in November 2018 is worth Rs 788 a year later.
12. IL&FS Transp. Networks
Lack of sufficient funds has affected the performance of the company. In Jan 2019, it failed to make the dividend payment due on redemption of cumulative non-convertible redeemable preference shares. Also, it defaulted payment on the non-convertible debentures in March 2019 and July 2019.
87% of the market cap eroded in the past year. RS 10,000 invested in IL&FS Transportation in November 2018 is worth Rs 1,317 in November 2019.
13. Mcleod Russel
The tea company is in poor financial health and facing liquidity crisis. Performance was affected due to a slump in the tea industry and operational issues due to rising costs of production. Also, the rising debt of Rs 1,700 crore forced the management to seek debt restructuring from the lenders.
In the past one year, the market cap has gone down by 95%. Rs 10,000 invested in Mcleod Russel in November 2018 is worth Rs 514 in November 2019.
14. Cox & Kings
The MCA ordered a probe on the alleged siphoning of money after the travel company defaulted on its commercial papers obligations. The company has also appealed to NCLT for liquidation.
The company lost 99% of its market value in the past year. Rs 10,000 invested in Cox and Kings in November 2018 is worth Rs 73 in November 2019.
How to protect yourself from such risks
Investors should invest across asset classes to manage news-specific risks.
Invest in professionally managed avenues like mutual funds
Fund managers are better equipped to identify companies that are facing business or regulatory stress.
Study the investment patterns of big investors
Investors should be careful if a stock witnesses a sudden decline in the institutional investors’ interest.
Be wary of stocks that generate high speculative interest
A thorough evaluation should be made for stocks that witness a low percentage of delivery quantity to the total traded quantity over a period of time.
Source: News reports and ACE Equity