Auditors are supposed to be first one to know about anything fishy going on in the company. In this case they are last. Were they living under a rock???
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Better late than never.
Few could have imagined that a massive 50000 crore company would befall such a fate. Its truly unfortunate and speaks volumes about the sorry state of affairs.
Despite months having elapsed since commencement of the downfall does anyone really know what triggered it?
There’s silence- Silence that’s excruciating.
Though there are no official reports, the black money generated in cash by pc jewellers during demon was probably accomodated as revenue by vakrangee.This was mentioned by me on forum few months ago too.Not only this, probably this was being done for few others too.There is lack of transparency,false announcements by both companies to somehow prop p the share price.Both r likely to go like satyam.I am surprised what was price water house doing till date at p c jewellers that it resigned only yesterday when water has gone above their heads.They should also be held accountable if any any wrong doing is revealed.
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Has it do something with the SEBI order that imposed a 2 year ban on PwC for auditing business.
PwC is allowed to audit till FY19, unless the ban is reserved by SAT. It is not usual for an auditor to resign after closure of a financial year and before finalization of accounts.
A statement by Vakrangee on BSE says pwc has audited/certified the Q3 result. No mention of Q4.
Finally, breaches Rs.100 levels after 2 long years.
i have no doubts that Vakrangee sales and profits are fake. And in my previous post I have done detailed analysis and even explained how they can still pay tax and dividend.
Atul observation that demon cash of PCJ may be adjusted as vakrangee sales and profit , looks good and match my thinking.
SP Tulsian on tv interview recently mentioned that some advance/credit to foreign supplier/Customer of 1500 cr in PCJ books could be fake entry.
Is that something routed to vakrangee, and they bought PCJ stock to somehow return it back …
What i do not get is how they are paying so much taxes?They must have paid atleast 1000 crore tax in the past 7 years.But they still dont have much debt and have not diluted their equity a lot.Where are they getting the cash from??
How are they paying tax and dividend?Their debt is low and they have not diluted their equity buy much.This is totally different from treehouse.
If someone is in business of converting black to white then obviously they will pay significant part of it as tax. Further they will get most of the tax paid back as the increase in market valuation of the company.
E.g. if someone pay 1000 crore in tax, how will market reward it…"? if increase in valuation is more then 1000 crore (it was over 10000cr for many) then they would prefer to continue paying tax and get it back by selling some shares to retail and fund managers who consider paying tax as gangasnaan.
Many other companies pay tax just to be eligible for more loans from banks. They paid huge increasing taxes. Banks think that good enough to project their revenues and gave them loans over 10times the collateral security … when trouble start, the revenue and profit fall like a knife … sundry debtors and stocks vanish in valuation and fixed assets are negligable to cover debt. Most of the debt is used to do acquitions, setup foreign subsidiaries, debt and guarantee to foreign suppliers and all the money is abroad.
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Frankly on this company I ve no idea . Also, with the kind n amount of information we have (unlike auditors ), it might be possible to find probability of fraud but it is very difficult to find n estabilish causality of fraud. Fortunately or unfortunately , I am aware of one such type where purpose was to convert black money into white by getting SEZ land allocation on the name of IT company ,the company went to the extent of hiring ex tax department beaurocrat on board seat to manage overall show. I wonder if these things can ever be proven by annual report analysis though signs of poor business quality were clearly visible. So, usually when someone is happy converting all lost 100 into some lost (pay tax, hire employees for show of strength ) n still happy making 60-70, this is possible .
There are multiple other ways too of doing this . This article highlights few - https://www.google.co.in/amp/s/m.economictimes.com/news/company/corporate-trends/how-shell-companies-turn-black-money-of-india-inc-politicians-into-white-and-vice-versa/amp_articleshow/20947474.cms
What I ve learnt is to stay away when signs indicate HIGH probability (high because the world is mostly GREY 
) of something being wrong and in majority of cases , it is not rocket science but more about ability to first understand what we do not understand, ability to control greed and ability to let many opportunity to pass because something MAJOR did not seem right though it does not mean something was for sure wrong. Conviction can be built over time also and market always gives opportunity in some or other form. Avoiding wrong is more important IMO. As they say, “All I Want To Know Is Where I’m Going To Die So I’ll Never Go There”.
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What if company creates a fake revenue model , builds fake valuation , create backend proxy shareholding accounts and dumps it to retail , makes money n job done. Treehouse is a classic case of what you r mentioning . Debt free, no pledge I think . PE funds invested. Again , I don’t know causality but there were signs visible. Hope this helps Dissecting Annual Reports and Governancev1.pdf (1.8 MB)
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Tree house may not have been visible as a fraud,but just the fact that it was repeatedly diluting equity(for whatever reason) and taking decent amount of debt,was a warning sign that the operating biz is not good.
There were warning signs in vakrangee too.First the annual report of 2014 was 293 pages long(about 50 pages of which were pure propaganda) .Can you believe that.But the issue is how come they were able to pay such taxes and what did they get in return.What you say may be true that the company was established to convert black money to white.
In vakrangee,the management had been issuing a lot of warrants to a promoter holding company.They increased the promoter holding a lot due to that.
Both treehouse n vakarangee had lot of red flags. I ve highlighted regarding treehouse in attached deck in above post. Vakarangee red flags have been discussed in one of most interesting thread vardharajan started on frauds. Apart from quantitative red flags, there were many apparantly qualitative red flags. If you go back to 2008-2012 annual reports , you will be shocked to see how in 1 year company changes its vision, mission, product , service and the model starts working without any change in balance sheet , asset etc. P&L, BS etc r nothing but a reflection of operations n when operations change , they change accordingly . Also, they kept it so generic that you can assume they r doing every possible business under the sun. Attaching some of tweets where I had highlighted this when curiously I was going through their last 10. Years of AR. One more thing, those who r in e-governance n IT business know well that these govt deals r hardly profit making n many company do this as a part of CSR ,that’s the reason why reputed mid cap companies do not even get into such deals. If you like around 2009-10 companies who got inflated valuation in e governance , many r unknown names now (glodyn technoserve etc.).The sheer reason it’s a commodity business with low single digit working capital heavy business where receivables r very high. However, that’s where financial innovations come. We can call it more postmortem analysis but there r companies which could be potential failure n they have such signs but then it’s up to us to ignore such companies or ignore those signs (one current company where saw some bullish research reports , they talk N times about their R&D capability and in last 5 years they’re R&D spend was 0 n in 1 year 9 lakh which on a sum of 5 year basis , not even 0.01% of revenue ).Bull market gives rise to stories because at the end stories sell in short term but fact is stories backed by real cash flows sell in long term . With such companies, there will always be reasons to justify red flags but it’s up to one how deep one wants to swim.
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Well ,thank you for sharing such useful information.I too was wondering the same about how the company is doing such generic things and earning such high ROE.The Roe has hovered around 40 percent.
I pretty much agree with your analysis on indian companies,but sometimes you have a feeling if the particular company is doing something special that such huge profits are made even from government projects.Sometimes a company may indeed be cutting costs or running operations well that it is earning a good income.The point is people almost never know beforehand if the company is doing a fraud.I mean vakrangee has been showing fraudulent financial info for a while and even nse come up with a report how it was a quality stock.
Like i said though ,there have been issues with this company’s corporate governance.For example the promoters increased their shareholding by about 15 percent in 2010 to 2012 by issuing warrants,even thought they were issued at a lower price than market when they were issued on 22 march 2010 at about 70 rupees.But then they sold the stock at about 300 rupees for a big profit.
Personally I still believe this company has a decent operating biz,since all its growth has been self funded without much debt and it has paid about 1000 crore in the past few years and also the dividends have been decent.