Prabhat Dairy shares jump 20%, hit upper circuit after SEBI asks firm to deposit Rs 1,292 crore 

Shares of Prabhat Dairy shot up 20% on Wednesday morning to trade at Rs 58.35 per share hitting the upper circuit, a day after capital markets regulator Securities and Exchange Board of India (SEBI) directed the firm to deposit Rs 1,292 crore in an escrow account. The SEBI order came in the light of an ongoing forensic audit of the firm that relates to the sale of its subsidiary last year. Prabhat Dairy shares have tanked 21% since the beginning of this month and are trading 37% lower year-to-date. 

SEBI’s order deals with Prabhat Dairy’s sale of Sunfresh Agro Industries Private Limited, a subsidiary of Prabhat Dairy to Tirumala Milk Products Private Limited. The deal was done last year for a total consideration of approximately Rs 1,227 crore. Although the company, in subsequent filings, said that it intended to share the proceeds of the deal with shareholders after meeting tax and indemnity obligations it failed to do so and in September last year instead said that the promoter and promoter group wished to delist the company.

The capital markets regulator highlighted news reports that said that Prabhat Dairy’s promoters were looking to take the company off the bourses at a floor price of Rs 63.77 per share which was at a significant discount to its market price back then. Prabhat Dairy shares were listed on the bourses at Rs 113 per share. 

In an effort to de-clutter the situation, SEBI said that it had appointed Grant Thornton as the forensic auditor with respect to the financial statements of PDL for the financial years ending March 31, 2019 and March 31, 2020. However, last week the auditor informed SEBI that Prabhat Dairy had not provided it with crucial information such as audited financial statements, share purchase agreement, GST returns, among others.

SEBI, apart from the deposit of Rs 1,292 crore in an escrow account within seven days, SEBI has also directed the company to furnish a weekly statement of debits/credits/balance in the Special Escrow Account commencing from October 30 this year to JM Financial which will act as the manager of the said account till the completion of the forensic audit. Interestingly the Prabhat Dairy’s results for the year ending March 2020 show that the company only has Rs 495 crore as cash and cash flow equivalents with the balance sheet. “The conduct of the Company and its Promoters/Directors does not inspire confidence in investors and exhibits blatant unwillingness to be transparent about the financial dealings,” SEBI’s order said. The market regulator also noted that unless the forensic audit is conducted, SEBI will not be in a position to determine whether or not the company has indulged in misstatement of accounts, diversion of funds to its subsidiaries which money belongs to shareholders. 

Analysts say that the sharp up move in the stock today could have been owing to the successful arrangement of funds by the company. “Owing to the corporate compliance issues that remain an overhang we do not recommend investors to push in fresh capital into Prabhat Dairy. Once the forensic audit is complete and SEBI’s order comes then we could reinitiate coverage and access the company’s standing,” said Vishal Wagh, Head of Research, Bonanza Portfolio.