Fav MNC Stock Of Ramesh Damani & Kenneth Andrade Tanks As Investors Dread Another Satyam From Auditors’ Dispute

It is unbelievable but true that Ricoh India, a MNC backed by Ricoh, the Japanese conglomerate, has plunged a whopping 56% since it touched a high of Rs. 1072 about eight months back.

In just the last three months, the stock has lost 42% of its valuation. It has been locked in the lower circuit for the past several sessions as investors are desperately seeking to bail out at any available price.

Prima facie, there appears to be a dispute between the Company and its auditors and this implies that there is something seriously wrong with the accounts of the Company.

Ricoh India’s auditors were originally a local firm of auditors called “M/s. Sahni Natarajan and Bahl”. They were unceremoniously replaced by M/s. BSR & Co. LLP, the Indian avatar of KMPG, the reputed Global firm of Chartered Accountants. The woes appear to have started since then.

The Company has been unable to present its Quarterly results for September and December 2015 citing “unforeseen and unavoidable circumstances”. It later stated that the “Limited Review for the Quarter ended September 30, 2015 is taking longer time in view of this being the first audit being done by our newly appointed Auditors”.

However, the latest communication dated 29.03.2016 from the Company suggests that there is more to the situation than meets the eye.

The communication points out that the Company has “not yet received the signed limited review report from the auditors and the audit committee would take up again the matter with the Statutory Auditors to submit their limited review report on an immediate basis”. It is also stated that “In order to assist the audit committee, the audit committee has sought the opinion of an Independent Agency in this regard”.

It is implicit from the communiqué that the auditors have completed the audit but are refusing to issue the limited review report. Why? A possible explanation is that the auditors have raised serious objections on the accounts and are demanding proper disclosure and provisioning, which the management is resisting.

The reference to “Independent Agency” whose opinion is being sought is also sinister. The “independent agency” could be another firm of Chartered Accountants who may seek to persuade the auditors to soften their stand. Alternatively, it could be reference to a law firm who may be asked to issue a subtle threat to the auditors of dire legal consequences if the audit report is not issued.

What is worse is that the communication states that “the review process is being coordinated by employees other than those who have been involved in the preparation, review, approval and signatures of the books and accounts” and that “pending completion of such review and in order to ensure independence of the review, some of the employees in the latter category have been requested to avail leave with pay”.

Now, the latter part of the communication clearly suggests that something is seriously wrong with the accounts. If employees who have “prepared the accounts” are sent on leave and others are appointed to “ensure independence” of the review of the accounts, it is a clear indication that something is amiss.

The communiqué calls this “standard practice” but I can tell you from my limited experience that employees who have prepared the accounts are at the forefront and have to answer the auditors’ queries. There is no question of such employees being sent on “paid leave” and being replaced by a fresh set of employees who have no clue about the accounting entries.

So, prima facie, Ricoh India’s management appears to be playing on the naivety of the investors and stock exchange that such half-baked explanations will be accepted.

The Company also appears to have a devil-may-care attitude as one can make out from the ET tweet:

@RicohIndia Mgmt says Not worried by India Ratings Placing co & its NCDs/CP on rating watch negative@AyeshaFaridi1

— avanne dubash (@avannedubash) March 16, 2016

Meanwhile, Investors who have trusted their precious wealth to Ricoh India, on the basis of its so-called stellar corporate governance standards, are heart-broken and one can see heart rending scenes at MMB.

kfy was furious: “what a system- ricoh india does not announce q2, q3 and q4 results? auditor bsr does not sign accounts with or without observations??? stock exchanges condemns the scrip to z category??? regulatory authorities are mute spectator no communication?…” he fumed.

“Japanese are famous for good governance,don’t know why any Japanese authorities are not doing any thing.” nicknamechanged904 wanted to know.

“We should plan Demonstration against Ricoh delhi office for making huge loss to investors due to their negligency. Delhi base investor should plan for this in april and investor from all over india should join.” a guest suggested.

Some investors like newadition feared a Satyam like situation. “Everyone thought it was good company. Looks like they are like satyam now. No one knows real story. So dont blame someone. It is you who invested ur money. Now still have time to exit. It will go below 300 for sure” he said.

“it`s not satyam i would say father of satyam!” bullmarket07 quipped.

“what stressful days are coming to an end ?? we are stuck at 700 levels .. shame on ricoh” an unnamed investor wept.

Some suggested that the whole exercise was an unscrupulous attempt to delist the company.

“they are taking the long route to delisting. first it will be suspended from trading and after couple of years the exchange will delist the stock. last year bse had delisted 1000 such stocks.” ijk123 opined.

In an earlier piece, I had drawn attention to the brilliant manner in which Ramesh Damani had conducted himself with regard to Ricoh India. He was one of the first to grab the stock when it crashed in the wake of the delisting failure. Thereafter, he made a public recommendation and also indulged in periodic selling of his vast holding. In the process, Ramesh Damani pocketed massive gains of up to 800%.

In contrast, Kenneth Andrade’s IDFC Premier Equity MF was late to arrive at the scene. They bought the stock at a much higher price as compared to Ramesh Damani. Also, instead of being nimble footed and booking gains when the stock surged, they have held on to the stock like mute spectators. So, instead of the fabulous gains that Ramesh Damani can boast of, IDFC MF is probably staring at a loss on the investment in Ricoh India.

Anyway, we have to hope and pray for the sake of the beleaguered investors of Ricoh India that the spat between the Company and the auditors is resolved soon and no ugly skeletons come tumbling out of hidden closets!