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VS Fernando
With the Sensex on the verge of scaling the historic 5000-mark, one cannot blame the small investor for not being able to resist the temptation of jumping into the fray and trying to make a fast buck. Nor can he be faulted for picking the affordable `B2' group stocks over the more dependable but costly `A' and `B1' scrips. But due to complete lack of information on most companies forming the `B2' group, the small investor often runs a huge risk of being taken for a ride by unscrupulous operators. The recent goings on at the BSE counter of the Vadodara-based Nexus Software Ltd (NSL) aptly typify this phenomenon and point to a well-orchestrated con game aimed at duping hapless but greedy investors pursuing every company bearing the `infotech' seal. If market grapevine is to be believed, the same operator who has jacked up the market price of Gramophone Company from Rs 70 to Rs 166 during the last month is responsible for the recent heightened activity in the NSL scrip. After catching the fancy of this operator,the NSL scrip, which was languishing at around Rs 5 a share in the beginning of August, has soared to Rs 26.55 a piece by the end of the month on the back of mounting volumes.
Propelled by a huge volume of 7.93 lakh shares, the scrip has entered September in a bullish mood, logging its all-time high of Rs 28.65. Just what could have triggered this bull run in NSL all of a sudden? During the last week of August, the company came out with its seemingly impressive unaudited results for the first quarter of the current fiscal, reporting a bottomline of Rs 2.01 crore on a gross income of Rs 2.88 crore, which translated into a net profit margin of, hold your breath, 70 per cent! More importantly, the results indicated an improvement of astronomical proportions over the corresponding previous quarter and the previous fiscal itself, wherein the company had logged losses.
Ordinarily, as a reaction to such a favourable development, a re-rating of the stock would have been justified. But in NSL's case, itsnone-too-impressive track record lead one to doubt the genuineness of the figures dished out for public consumption. Promoted in 1992 by Nikunj Patel and associates, NSL had not commenced any business activity when it went public in November 1994 with a Rs 4-crore par issue. Though the issue was to part-finance the Rs 5.98-crore export-oriented large-scale software development unit at the Ramangamdi industrial area in district Baroda, it was neither appraised nor funded by any bank or financial institution.
In four years, NSL not only failed to achieve even a fraction of the projected turnover or profitability, but put up a pathetic display. That it could notch up a cumulative income of only Rs 0.54 crore and a loss of Rs 1.42 crore in three fiscals from 1997 to 1999 should put the matter in the proper perspective. On top of this woefully inadequate financial performance, NSL even failed to send its successive annual reports to the BSE. In fact, the only annual report available with the country's premierstock exchange is for fiscal 1998. Even this solitary report was received by the exchange only in March 1999 and, that too, when the BSE suspended trading in the NSL scrip between March 15 and April 4 this year for non-provision of the requisite notice of book closure by the company. NSL ultimately came out of the suspension by paying a stiff penalty to the BSE.
Even NSL's only available annual report for fiscal 1998 makes some startling revelations. Here's why:
1. Though more than four years have passed since NSL's issue, an entry for Rs 85 lakh continues to be outstanding under the accounting head, `Capital Work in Progress' (CWIP). This amount was advanced in 1994 to Tinysys Consultancies P Ltd (TCPL), Baroda, which was to supply assorted computer hardware and software for Rs 354 lakh. Significantly, it was during this period that NSL received Rs 112 lakh as share-application money from the promoters.
In the context of the CWIP remaining uncapitalised for so long, could there be a nexus between NSL'spromoters and TCPL which has enabled the former to bring in the share-application money? Well, only NSL's promoters would know.
2. As against a projected gross block in excess of Rs 5.5 crore, the reported gross block, plus the contentious CWIP and pre-operative expenditure, amounted to only Rs 3.36 crore as at the end of March 1998. No explanation is adduced anywhere for the shortfall.
3. For a company which projected a manpower requirement of 601 personnel in its offer document, salaries in fiscal 1998 amounted to barely Rs 2.88 lakh.
4. Though not contemplated at the time of the public offer, NSL's investment portfolio at the end of fiscal 1998 stood at Rs 78.84 lakh. All the companies in which NSL had invested appeared to be either obscure or those belonging to its promoters.
5. In fiscal 1997, NSL had booked a huge loss of about Rs 60 lakh on "sale of assets". Which assets were sold and why are not known.
6. Sundry debtors' outstanding at the end of fiscal 1998 amounted to Rs 46.12 lakh, whichincluded a sum of Rs 40.87 lakh carried forward from the previous year. There does not seem to be any reasonable hope of recovery of this amount, yet it was not provided for.
7. Loans and Advances of Rs 50.76 lakh granted by NSL were outstanding for over one year, the recipients of which are not known.
8. Though the secured loan of Rs 25.11 lakh obtained by NSL from a cooperative bank remained unchanged throughout fiscal 1998, interest charge for the year was shown as `nil' in the profit and loss account! Yet, NSL's directors' report stated thus: "...due to the heavy interest burden the company has suffered net loss of Rs 2314211"!!
9. NSL could neither obtain a bank statement nor confirmation of balance in respect of an "inoperative account" supposedly having a balance of Rs 460,216. Incidentally, this was the single major item amongst `cash and bank balances'.
10. According to NSL's auditors, "The property is yet to be transfer (sic) in the name of the company." Incidentally, the auditors were paidRs 4.75 lakh in fiscal 1998 for "other services".
11. A host of accounting heads, viz, secured loan, unsecured loan, capital work in progress, pre-operative expenditure, investments and loans and advances, which constitute the very essence of a balance sheet, remained undisturbed during the whole of fiscal 1998.
Meanwhile, the promoters hold 16.29 lakh shares, of which 13.28 lakh shares are under lock-in till the end of 1999. According to informed traders, the operator in the counter could be working in tandem with NSL's promoters.
Thus, from all angles, NSL appears to be a perfect candidate for relegation to the newly constituted rogues' gallery, `Z' group. But for the moment, the BSE management has imposed a special margin of Rs 5 per share on the NSL scrip, which may prove to be too little if and when matters go out of hand.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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