Diamond Power Infrastructure unplugged, short-circuits public and private sector banks

The hard time being faced by the Vadodara-based cable and electrical equipment-maker Diamond Power Infrastructure Limited (DPIL) does not seem to get over anytime soon.

The financial mismanagement and alleged fraudulent practices by the promoters, in connivance with a few bank officials, is taking the sheen off the company.

The beginning

Charged with defrauding public and private sector banks of ₹2,654.40 crore, DPIL was started in the early 1970s with a conductor manufacturing unit in Vadodara. It was a steady upward growth for the company as it expanded operations to low-voltage cable manufacturing, aluminium rod mill, EPC business and high-voltage cable making operations till 2010, under the leadership of founder-promoter, Suresh Narain Bhatnagar.

DPIL had adopted organic and inorganic routes for growth and achieved remarkable manufacturing strength by acquiring strategic or controlling stakes in companies such as Western Transformers and Apex Electricals, in 2007, and later in 2012, acquired strategic stakes in Utkal Galvanizers and power and control panel-maker Maktel Control & Systems, besides a controlling stake in Danke Controls.

The company had set up a one-of-its-kind Ultra High Voltage Cable Testing Laboratory with a capacity of 500 kV.

The company’s shares had touched a peak of ₹134 on the Bombay Stock Exchange (BSE) in November 2014.

In the meantime, the company passed through a succession plan, when Suresh’s son, Amit Bhatnagar, then Joint Managing Director, was made the Managing Director in 2010. Having reported steady growth in consolidated sales and profits during fiscal years till 2011-12, the company started facing headwinds in later years.

For fiscal 2015, it reported a loss for the first time in years – ₹116 crore on a net sales of ₹2,422 crore.

The company’s profitability dwindled further and it sunk further into losses. For last reported annual results for 2016-17, DPIL posted a net loss of ₹808 crore on net sales of ₹1,153 crore.

Addressing its shareholders in the annual report for the year 2016-17, Amit Bhatnagar said: “The company’s financial performance bore the brunt of high debt accumulated on account of capacity expansion as well as inorganic growth initiatives undertaken.”

Bhatnagar, along with father Suresh N Bhatnagar and brother Sumit Bhatnagar, were named in the First Information Report (FIR) filed by the Central Bureau of Investigation (CBI) in the alleged ₹2,654.40-crore fraud with the banks.

According to sources, the fall of the company started after the spendthrift nature of the promoters surfaced at the expense of the company. “Amit Bhatnagar has been the key force behind extravagant events in the city of Vadodara. The attention of the management was often diverted towards non-core functions of the company. This resulted into several failures in operations and that could have prompted the promoters to resort to unscrupulous means to keep the company afloat,” said a source not willing to be quoted.

Bhatnagar was one of the organisers of mega event, VadFest, a cultural and musical festival, which had performances of personalities such as AR Rahman and Yanni in January 2015.

Bhatnagar had secured the confidence of top politicians, including then Gujarat energy minister Saurabh Patel and former Union Power Minister Piyush Goyal.

In March that year, officials from the Central Excise department had arrested Amit Bhatnagar on charges of fraudulently availing CENVAT Credit to the tune of ₹100.80 crore (claims of DPIL) till 2013 by submitting bogus purchase invoices against which no material was received. He was given bail later.

High-profile celebrations

At a time when the promoters were busy in high-profile celebrations, Joint Lenders Forum (JLF) of 11 consortium banks was created in January 2015 for restructuring the accounts of DPIL under Corrective Action Plan (CAP) under Corporate Debit Restructuring (CDR). Bank of India was made lead bank for all types of loans. The accounts were restructured on March 2015.

In February 2016, DPIL reached the point of no return after its accounts in Bank of India and Bank of Baroda were declared Non-Performing Assets based on Asset Quality Report conducted by RBI.

As the CDR could not succeed, JLF decided for Strategic Debit Restructuring (SDR) Scheme, with reference date as June 29, 2016. Under this, outstanding loan of ₹828.42 crore was converted into equity at the rate of ₹41.28 per share and were distributed between the consortium members.

According to a financial advisor, “DPIL account was also put under forensic inspection by the lenders.

At the instance of lenders, some outside agency had conducted forensic audit of DPIL transactions about a year ago. The transactions found were normal.”Meanwhile in March 2017, the promoters attempted a bail-out through an outside investor company called CKP Group, which proposed to infuse ₹1,200 crore under the Strategic Debt Restructuring (SDR) Scheme.

Converts debt into equity

In the meantime, the company shareholders had approved the proposal to convert ₹2,398-crore debt into equity and optionally convertible redeemable preference shares.

As on December 31, 2017, the promoters held 11.41 per cent, while public holding (mostly lenders) is 88.59 per cent.

The CBI, in its FIR dated March 26, 2018, has alleged that DPIL submitted false stock statements to the lead bank and also acted in connivance with officials from various banks to obtain enhancement in credit facilities despite failing to achieve the inflated figures of sales estimates.

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