The story of Jignesh Shah and Financial Technologies (“FTIL”) is a tragic one of rags to riches to rags. Fortunes have been made and fortunes have been lost. The story starts in 1999 when Jignesh Shah and Vaidyalingam Hariharan, then working with BSE & NSE respectively, decided to start their own venture to cater to the needs of brokers and investors by providing the tools for computer trading.
FTIL got a contract with NSE and designed the popular software “ODIN”. The software proved very popular with brokers owing to its user friendly interface and fast streaming. It was a money-spinner for FTIL.
In 2002, FTIL secured a license to set up MCX, a commodity futures market. This would be the first listed exchange in India.
Prof. Shivanand Mankekar got interested in FTIL in March 2004 and he bought a chunk of 4,28,000 shares at around Rs. 82 per share.
Magically, as soon as FTIL received Prof Mankekar’s golden touch, its stock price began its ascent. By June 2005, the stock price had surged to Rs. 323. Prof Mankekar bought more shares and increased his holding to 7,20,000 shares.
The stock took off like a rocket and was unstoppable. By March 2007, the stock surged to Rs. 1900+, giving Prof. Mankekar a 23-bagger over his initial purchase price. The Prof’s holding then was worth about Rs. 137 crore.
At this stage, Prof Mankekar began to get jittery and began to pare his holdings in FTIL. Did he sense that something was amiss with FTIL?
By the end of March 2007, the Prof had sold off all his holdings in FTIL.
Prof Mankekar’s timing was impeccable. Though the stock did surge to an all-time high of Rs. 3048 in July 2007, the great stock market crash of 2008 came thereafter and FTIL slumped to a low of about Rs. 450.
Things were coasting along nicely for FTIL and MCX till July/ August 2013 when the National Spot Exchange Ltd (NSEL) scam broke out. In just one trading session, FTIL plunged 60% while MCX plunged 20%. The carnage continued till much later, tripping the lower circuits and reducing both stocks to a shadow of their former self.
Jignesh Shah is the biggest loser in the carnage. He and his family members hold 2.10 crore shares of FTIL. At the peak, these shares were worth an astounding Rs. 6,408 crore. Today, the shares are worth about Rs. 630 crore.
Trouble compounded for FTIL when the FMC & SEBI held that FTIL is not a ‘fit and proper person’ to hold shares in MCX. FTIL was directed to sell the shares by the deadline of 30th April 2014.
At this stage, Prof Mankekar appears to have taken the view that this was the lowest point in FTIL’s history and that things could only get better from here. So, he bought a chunk of 13,50,000 (2.93%) in FTIL at an average price of about Rs. 380 in the name of his wife Laxmi Shivanand Mankekar.
The Prof was also probably impressed by Jignesh Shah’s composed mind and steely determination. You can see a glimpse of this in the ETNow video.
At this stage, we have to ask ourselves why Prof. Mankekar chose FTIL instead of MCX. Would not MCX, a pure play exchange, have been a better buy than FTIL? Prashant Jain of HDFC Mutual Fund, for instance, bought a chunk of 3 lakh shares of MCX at the peak of the crises for a throwaway price of Rs. 293 instead of FTIL. Probably, the Prof’s calculation was that in buying FTIL, he would get a stake in not only MCX but also the several other businesses that FTIL has interests in.
FTIL is now on the edge of the cliff owing to a number of adverse developments. While a number of big-ticket investors like Kotak, ADAG group etc have shown their interest in acquiring FTIL’s stake in MCX, Reliance Capital complained to the FMC that MCX was not co-operating and ought to release a forensic report prepared by PWC. That appears to have put enormous pressure on MCX and it released the report on the eve of the deadline set by SEBI for the stake sale. The PWC report has exposed several grave irregularities and discrepancies in MCX’s operations and business dealings with FTIL.
The result is that the bidders have gone into a shell. The deadline set by FMC & SEBI has come and gone and the stake sale by FTIL has not taken place. The FMC has stated that it will take a decision on 6th May 2014 to decide the future course of action. The worst case scenario is that MCX’s license to run the Exchange is revoked. If that happens, FTIL’s holding in MCX will become worthless.
Manoj Vaish, who was appointed MD and CEO of MCX just three months ago, couldn’t handle the pressure and resigned on 1st May 2014.
In the light of this great uncertainty, it is understandable that FTIL’s stock price has sunk to a low of Rs. 300, giving Prof. Mankekar a loss of nearly 21%.
Now, 6th May 2014 could be a defining moment for FTIL. In all probability, the FMC will extend the date for the stake sale since the bidders have asked for time to study the PWC report and get clarifications from the management. The FMC may also take over the process of the stake sale though it has declined to do so in the past.
The other aspect of great uncertainty is the valuation of MCX. According to reports, the bids are in the range of Rs. 600 to Rs. 750. However, given the revelations of irregularities in the PWC report, the valuations may get crunched, impacting the stock price of FTIL.
While other investors are anxiously awaiting their fate, Prof Mankekar has nerves of steel. Will his magic touch work this time? Watch this space!