Rolta India: proxy advisory firms suggest forensic audit

With the ongoing fracas between US-based research agency Glaucus Research and Indian tech company Rolta India, proxy advisory firms believe that only a forensic audit of Rolta’s accounts can settle Glaucus’ allegations of widespread fudging of capital expenditure figures.

Shriram Subramanian, founder of investor advisory service InGovern, said the report only indicates its own opinion of the company. “Every investor is entitled to their own opinion of a company,” he said.

Every day there are analysts making buy or sell recommendations on companies. In this case, with Glaucus questioning Rolta’s accounts, it is up to the company to establish that it is transparent.

Other investors can then decide whether to stay invested in the stock or exit it, he added.

Earlier this week, Glaucus, which holds bonds issued by Rolta’s Delaware, US-subsidiary, made a “strong sell” recommendation of the bonds saying that it believes “Rolta has fabricated its reported capital expenditures in order to mask that it has materially overstated its EBITDA.”

The capital expenditure it has called into question involves expenditure on computers, office fixtures, buildings and defence prototypes. JN Gupta, Managing Director, Stakeholders Empowerment Services, says if the research report is true, then it merits serious investigation into the company’s accounts. However, he pointed out that while the bonds were issued by the US subsidiary, the report focuses exclusively on the Indian parent company. The fact that Glaucus has taken a short position on the bonds does not necessarily mean the report is meant to manipulate the price of the bond, since Glaucus has fully disclosed its position, Gupta said.

In an exchange filing, Rolta India said the report is “mala fide, malicious, and aimed at misleading investors.”

Meanwhile, a Reuters report said Deutsche Bank has raised its investment recommendation on Rolta India bonds to ‘buy’ from ‘hold’. Deutsche said it agreed with the company’s response that Glaucus had made factual errors.

“Issues such as persistent negative FCF (free cash flows) have been well known for a while, as the company was in the middle of a heavy capex cycle, which is now over, and in fact, it finally turned slightly free cash flow positive in the last quarter,” Deutsche said.

The stock of Rolta India fell 2.57 per cent on the BSE on Friday, closing at ₹149.95.

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