Nirmal Bang raises concerns over Sintex's corp governance

Broking firm says corporate governance has taken a back seat at Sintex Industries

Sintex Industries Ltd (SIL) has drawn flak from broking house Nirmal Bang Securities, which has questioned the company’s corporate governance practices, following a report that said the Directorate of Revenue Intelligence (DRI) had seized an aircraft belonging to a firm co-owned by SIL’s promoter for alleged duty evasion.

“We believe aircraft procurement historically has been considered a corporate governance issue,” said Nirmal Bang Securities’ analysts Jignesh Kamani and Saiprasad Prabhu in a note to clients. “Although we believe the purchase of the aircraft has no financial impact on SIL’s books, we reiterate our stance that corporate governance has taken a backseat at SIL,” they said in the report released on Tuesday.

The research note comes in the wake of the report that DRI has seized a nine-seater Bombardier aircraft imported last year worth Rs 70 crore belonging to Zest Aviation, jointly owned by Zydus Cadila Managing Director Pankaj Patel and SIL chairman Dinesh Patel, for allegedly evading customs duty to the tune of Rs 12 crore.

In the past, too, SIL had been at the receiving end of Nirmal Bang and JP Morgan for its corporate governance standards. The company was accused of delaying the announcement of a Rs 700-crore deal between one of its subsidiaries and a group company.

According to analysts at JP Morgan and Nirmal Bang, for almost four months, SIL had kept the market in the dark about an order its arm Sintex Infra Projects secured from Shirpur Power, owned by the promoters of SIL.

The delay in announcing the order win and the fact that the deal was between two companies from the same group raised concerns over its corporate governance standards, the analysts had said in November 2011.

In its latest report, Nirmal Bang said securing a large order from Shirpur Power had raised concerns over related party transaction because SIL has not executed any power engineering, procurement and construction (EPC) contract so far.

“Most established EPC / balance of plant players like BGR Energy Systems and Larsen and Toubro are desperate for orders as the new order pipeline in the power sector dried up and competition intensified. In such a scenario, we are not upbeat about SIL’s entry into the power EPC business,” the analysts said.

While retaining its sell rating on the Sintex stock with a price target of Rs 63, Nirmal Bang said: “We are definitely concerned about the deteriorating corporate governance.”

SIL shares fell 1.13 per cent on Tuesday on BSE to end the day at Rs 70.05 on, while the benchmark index, Sensex, gained 0.26 per cent to close at 19,742.52 points.