When Prof. Shivanand Mankekar shelled out a princely sum of Rs. 51.30 crore to buy a huge chunk of 13,50,000 shares of Financial Technologies in March 2014 at Rs. 380 each (in the name of his wife, Laxmi Mankekar), he set investing circles agog with excitement. What got investors most intrigued is the fact that the Prof. put his weight behind FTIL even though his peers like Prashant Jain of HDFC MF backed MCX.
Prashant Jain was in fact way ahead of everyone else. As far back as in August 2013, when the news of the NSEL scam had just broken out and there was heavy dust in the air, Prashant Jain rushed in to scoop up a chunk of 3,06,000 shares of MCX at the bargain basement price of Rs. 293.
Subsequently, in October 2013, when the dust settled a bit, Ankur Shah of Value Investing India Report conducted a brilliant analysis of why MCX was a great buy. After a meticulous study of facts and figures, Ankur Shah argued that MCX did not face any potential liabilities as “there is no direct link between NSEL and MCX”. He recommended a buy on the basis that “the main fallout from the NSEL crisis for MCX was reputational as opposed to any financial or legal liability”. At that time, MCX was quoting at Rs. 446 and Ankur confidently predicted a fair value of Rs. 727 for the stock.
The interesting point is that the analysis that Ankur Shah made about MCX, namely, that there is no “direct link” between it and MCX and that it did face any “financial and legal liability” could not be said about FTIL. FTIL, as the parent company with a 99% holding in NSEL and 26% (then) in MCX, was directly in the line of fire. As subsequent events held out, FTIL & its promoter, Jignesh Shah, were declared “unfit” to hold shares in MCX and were asked to divest their shareholding in favour of Kotak Mahindra Bank. Jignesh Shah was also subsequently arrested.
The latest development in the form of the (draft) order of the Government directing the amalgamation of NSEL into FTIL so as to allow “satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEL” makes the situation absolutely untenable for FTIL’s shareholders. NSEL has staggering liabilities (estimated at Rs. 5,500 crore) and it is unfair to ask FTIL’s shareholders to ask to foot the bill.
So, it is perplexing why, to begin with, Prof. Shivanand Mankekar chose FTIL instead of MCX. Surely, a visionary like him would have foreseen all these potential problems and steered clear of them. At the CMP of Rs. 179 for Financial Technologies, the Prof. is staring a loss of nearly 50%+ of his investment. To add insult to injury, MCX, at the CMP of Rs. 788, is up about 50%+ from that date.
We will have to wait to see how Prof. Shivanand Mankekar handles this situation. Will he just dump the shares (as he did with Wockhardt, when it faced the FDA crises) and book the loss or will he hold on to it in the hope that there will be a dramatic turnaround to its fortunes. There is a lot of opposition (1) (2) to the FTIL-NSEL proposed merger and it is possible that the Government may rescind the move. If so, that will provide some respite to the Prof. and the other beleagured investors of FTIL.