Somany Ceramics’ Stock Tumbles 20% As Debtor Defaults
Sonamy Ceramics said a cheque of Rs 26 crore issued by Mentor Financial Services has bounced owing to insufficient funds.
Investors dumped shares in Somany Ceramics Ltd. after a stockbroker of one of India’s largest listed tilemakers defaulted in repayment of outstanding loans.
Sonamy Ceramics told the bourses that a cheque of more than Rs 26 crore issued in its favour by Mentor Financial Services Pvt. Ltd. has bounced owing to insufficient funds. “The company issued demand notices for repayment to Mentor Financial Services, its directors and its authorised signatory as per requirements of the applicable law,” the exchange filing said.
Also, “in view of continued default by Mentor Financial Services, its directors and its authorised signatory, Somany Ceramics has now filed a criminal complaint Bahadugard, Haryana, Police Station”, it said.
Somany Ceramics has been investing in market instruments through its stockbroker, Mentor Financial Services, which used to park surplus funds at higher yields for the interim period before it was invested, according to a report by ICICI Securities. “Any failure to recover the amount would lead to provisioning for it in Somany Ceramics’ profit and loss (Rs 26 crore being nearly 34 percent of estimated FY20 profit after tax), leading to significant deterioration in its FY20 earnings,” the brokerage report authored by research analysts Nehal Shah and Jigar Shah said.
As of March 2019, Somany Ceramics lent Rs 9.1 crore to Mentor Financial Services with a repayment term within a year, according to its annual report. The tilemaker has current investments worth Rs 68.53 crore, largely invested in bonds, debentures and mutual funds. Its cash and cash equivalents and consolidated profit after tax stood at Rs 24 crore and Rs 53.2 crore, respectively, as of March.
The troubles at the company, however, aren’t new. In the financial year ended March 2019, the tilemaker allegedly found its two employees—responsible for payment processing of certain imported trading goods—illegally transferring funds worth Rs 15.85 crore from the company’s bank account.
“While the company had already provisioned for a loss of Rs 15.9 crore in FY19 towards the fraud, Somany Ceramics may soon provide for another Rs 26 crore to cover a stockbroker default,” ICICI Securities said in the report. The recent lapses in systems, however, a bit discomforting, it said. “Conservatively providing for losses expected on investments, our earnings (estimates) stand reduced by 28 percent and 20 percent for FY20 and FY21, respectively.”
That also prompted the brokerage to downgraded Somany Ceramics to ‘hold’ from ‘buy’ with a revised price target of Rs 300 apiece from Rs 500 a share earlier.
Despite several attempts, Abhishek Somany, managing director of Somany Ceramics, didn’t return BloombergQuint’s calls.
On Monday, Somany Ceramics’ shares fell 19.99 percent to Rs 228.80 apiece on the BSE while the benchmark Sensex gained 0.44 percent to end the day at 37,145.45 points.