Prithvi’s recent acquisition despite multiple scandals and losses raises a stink
May 12, 2010
Despite being under regulatory watch for apparent financial subterfuge, Prithvi Information Solutions appears to be unfazed. Its recent overseas acquisition should raise some eyebrows
IT solutions and engineering services company Prithvi Information Solutions (Prithvi) is shrouded in multiple cases of financial manoeuvrings. Over the past one year alone, the Hyderabad-based company has attracted one controversy after another, without drawing flak from the regulator. Now, it has announced a $3-million acquisition of US-based business intelligence firm, Percentix.
How is it that a company conspicuously involved in questionable practices continues to operate unfazed and unbridled, to the extent of making overseas acquisitions? Consider the facts: In the year 2009, three international audit firms walked away without signing the balance sheet. Ernst & Young resigned after signing a heavily qualified balance sheet in March 2009. It was followed by PriceWaterhouseCoopers (PwC), which resigned in panic in the wake of the Satyam scandal.
The firm that replaced PwC as an auditor made as fast an exit as PwC and resigned in less than four months without signing the accounts. In the subsequent Annual General Meeting (AGM) of Prithvi, the company appointed another firm, VK Asthana & Co, which did not show any hesitation and signed the accounts without raising any questions. The firm completed its audit within just 23 days and issued the report on the financial statements. Very convenient indeed!
Less than a month after the AGM on 30th January, there was a report in Tehelka magazine dated 27 February 2010 about another scandal where Prithvi was issued a summons by a city criminal court. The Rs200 crore alleged fraud involves unpaid dues to a leading Japanese corporation. Tehelka says that the company diverted money to be used for buying telecom equipment for State-owned Bharat Sanchar Nigam Ltd (BSNL) to itself, by shadily diverting payment terms and having the money credited to its own accounts, without informing Sojitz Corp of Japan.
A couple of days earlier, the company had planted a report in a couple of obscure journals that it was set to bag an order worth Rs200 crore—the exact amount diverted in the Sojitz case. It is also facing action from the Directorate of Revenue Intelligence (DRI), although the accuracy of these charges is not known.
Add to this, Deutsche Bank had filed a first information report (FIR) in June 2009 accusing Prithvi's promoters of a fraud of Rs40 crore, according to a CNBC report. Although Deutsche Bank has remained tight-lipped in public, it is reported that Prithvi had diverted bank funds to real estate and made false claims about significant global contracts.
For a while, the Securities and Exchange Board of India (SEBI) had surprisingly chosen to remain a mute spectator to the company’s brazen actions. After Moneylife exposed the company’s practices a couple of months ago, SEBI stood up and took notice, and claims to have been investigating the company since.
Amitava Lahiri, senior VP and head of IT services at Prithvi had told the Financial Chronicle a few days ago that this acquisition is part of an overall strategy to make Prithvi a $1 billion firm by revenues. This seems ambitious considering the state of the company’s financials, which are worsening every year. For the March 2010 quarter, the company has recorded a net loss of Rs49.58 crore as against a net loss of Rs6.87 crore for the previous corresponding quarter. Its year-on-year performance has also witnessed a substantial drop. For the year ended 31 March 2010, the company registered a net profit of Rs4.92 crore compared to Rs44.46 crore for the year ended 31 March 2009.
Yet, the company appears quite optimistic about its future. Prithvi expects to bag several new deals this year and has even firmed up plans to increase its headcount in view of the same. Reports state that the company is looking to recruit about 1,000 more people to cater to its ‘expanding’ business.
Considering the extent of Prithvi’s financial machinations, one would think either the regulator or the stock exchanges would have taken the company to task long ago. Their deafening silence till recently was really surprising. Now that SEBI has supposedly decided to take a closer look at the company, some concrete action should be expected soon.
It should be a worrying fact for SEBI that the company remains unabashed despite the regulator’s presence.