Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Vedanta Limited Reports Results: KEY Info on Deal Funding Embedded

Vedanta Delisting Proposal/Offer Fails (We Think)

Vedanta - Someone Is Playing Silly Buggers But Even On The Last Day Investor Strategy Matters

On the opening date of Vedanta’s delisting offer (October 5, 2020), <a href="https://www.smartkarma.com/entities/icici-securities-ltd" target="_blank" data-smartkarma-citation="entities:26737:1" rel="noopener">Icici Securities (ISEC IN)</a> (I-Sec) issued a results research note on <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> with the following bizarre statement: “Vedanta has highlighted the SEBI [The Securities and Exchange Board of India] approved book value (ex the revaluation reserves) of Rs 89.3/share.” I-Sec, a listed subsidiary of <a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a> , is an investment bank and sell-side firm. The report was authored by <a href="https://www.linkedin.com/in/abhijit-mitra-aa795846/?originalSubdomain=in" target="_blank" rel="noopener">Abhijit Mitra</a> (with 8 1/2 years sell-side experience) and Udaykiran Paluri. Even a novice analyst would know that a company’s accounts are certified by the auditor, and the capital market regulator has no role to approve or disapprove a company’s book value.In any credible sell-side firm, the maker-checker (or “four eyes”) principle requires that a supervisory analyst approve the research note prior to publication. Normally, an editor reviews the note for grammar, sentence construction, logic and overall flow. An experienced sell-side editor would have rectified the “SEBI approved” phrase, as the terminology is not used in sell-side research. In a domestic firm like I-Sec <a href="https://www.linkedin.com/in/manoj-menon-8ab8712/?originalSubdomain=in" target="_blank" rel="noopener">Manoj Menon</a>, as the head of institutional research, should have signed off as the supervisory analyst, and this phrase should have been immediately flagged. All research reports also have to be approved by the compliance department prior to publication. It is a mystery how in a prominent sell-side firm, majority-owned by a leading bank, such a phrase slipped through these quality control measures.Despite being a listed company, I-Sec has displayed a complete lack of transparency in clarifying how such an appalling lapse took place. SEBI directed the company to issue a public statement, which was carried in the prominent newspapers, whereby the company acknowledged that the phrase should read as “Vedanta has highlighted that the FY20 book value is Rs 89.3/share.” I-Sec declined to clarify to the media as well as to this writer how its internal systems could have failed, permitting such a statement to be published in a research report.An alternative explanation is that, even though I-Sec was not involved in the Vedanta delisting offer as an investment bank, it was trying to support the founders of Vedanta by persuading the company’s minority shareholders that, since the regulator had “approved” the book value, it was an appropriate floor price for the issue. Media <a href="https://www.pressreader.com/india/business-standard/20201009/282050509529492" target="_blank" rel="noopener">reports</a>, citing sources, say that SEBI may launch a probe on the timing of the I-Sec report. The Vedanta delisting offer was controversial, as the management depressed the book value by taking huge write-offs of Rs 174 bn. Moreover, the management had chosen not to pass on the dividend of Hindustan Zinc to shareholders, contrary to the promises in its dividend distribution policy.Whatever the explanation, the credibility of I-Sec, and particularly its research, has been tarnished by this episode. To date no action has been taken on the concerned officials who had approved the phrase. The public ignominy of issuing an erratum in prominent media agencies may just be the beginning, and further penalties may lie in store.

On the opening date of Vedanta’s delisting offer (October 5, 2020), Icici Securities (ISEC IN) (I-Sec) issued a results research note on Vedanta Ltd (VEDL IN) with the following bizarre statement: “Vedanta has highlighted the SEBI [The Securities and Exchange Board of India] approved book value (ex the revaluation reserves) of Rs 89.3/share.” I-Sec, a listed subsidiary of ICICI Bank Ltd (ICICIBC IN) , is an investment bank and sell-side firm. The report was authored by Abhijit Mitra (with 8 1/2 years sell-side experience) and Udaykiran Paluri. Even a novice analyst would know that a company’s accounts are certified by the auditor, and the capital market regulator has no role to approve or disapprove a company’s book value.In any credible sell-side firm, the maker-checker (or “four eyes”) principle requires that a supervisory analyst approve the research note prior to publication. Normally, an editor reviews the note for grammar, sentence construction, logic and overall flow. An experienced sell-side editor would have rectified the “SEBI approved” phrase, as the terminology is not used in sell-side research. In a domestic firm like I-Sec Manoj Menon, as the head of institutional research, should have signed off as the supervisory analyst, and this phrase should have been immediately flagged. All research reports also have to be approved by the compliance department prior to publication. It is a mystery how in a prominent sell-side firm, majority-owned by a leading bank, such a phrase slipped through these quality control measures.Despite being a listed company, I-Sec has displayed a complete lack of transparency in clarifying how such an appalling lapse took place. SEBI directed the company to issue a public statement, which was carried in the prominent newspapers, whereby the company acknowledged that the phrase should read as “Vedanta has highlighted that the FY20 book value is Rs 89.3/share.” I-Sec declined to clarify to the media as well as to this writer how its internal systems could have failed, permitting such a statement to be published in a research report.An alternative explanation is that, even though I-Sec was not involved in the Vedanta delisting offer as an investment bank, it was trying to support the founders of Vedanta by persuading the company’s minority shareholders that, since the regulator had “approved” the book value, it was an appropriate floor price for the issue. Media reports, citing sources, say that SEBI may launch a probe on the timing of the I-Sec report. The Vedanta delisting offer was controversial, as the management depressed the book value by taking huge write-offs of Rs 174 bn. Moreover, the management had chosen not to pass on the dividend of Hindustan Zinc to shareholders, contrary to the promises in its dividend distribution policy.Whatever the explanation, the credibility of I-Sec, and particularly its research, has been tarnished by this episode. To date no action has been taken on the concerned officials who had approved the phrase. The public ignominy of issuing an erratum in prominent media agencies may just be the beginning, and further penalties may lie in store.

Currying Favour with Vedanta? I-Sec Report’s Appalling Lapse

ICICI Securities Ltd

Currying Favour with Vedanta? I-Sec Report’s Appalling Lapse