Rolta India stock down 11% on Glaucus Research's "strong sell" report

A report by US-based Glaucus Research on Thursday said Mumbai-based information technology firm Rolta India was expected to underperform the trend in average market returns, and issued a “strong sell” recommendation on the stock”. It claimed that Rolta India did not produce free cash flow and could not repay offshore bondholders without refinancing.

News agency Reuters quoted Glaucus Research as saying: “In our opinion, bondholders and rating agencies have fallen for the myth of Rolta.” The research firm has also reportedly advised investors to sell the company’s bonds due in 2018 and 2019.

Following the report, Rolta India’s shares fell as much as 11 per cent on BSE and were trading at Rs 157.25 apiece at 1:30 pm IST — down Rs 17. 65 paise from their previous close.

Glaucus set a price target of 16 cents on the dollar for Rolta India’s bonds due in 2019 and those due in 2018 (which had raised $500 million in aggregate).

The Glaucus report said Rolta, with operations in India and North America, fabricated its reported capital expenditures. In particular, it described the company’s reported spend on office furniture and buildings in Mumbai as “highly suspicious”.

Rolta India, however, rejected the research firm’s claims of a ‘capital expenditure fraud’. Chief Financial Officer Hiranya Ashar called the report "inaccurate and completely baseless", according to a Reuters report.

“We have made a lot of investments over the past five years, and all of those have contributed to our assets... and these assets are very much there,” Reuters quoted Ashar as saying.

Ashar said Glaucus had not contacted the company or inspected its properties.

“Buildings are not something one can hide,” Ashar said, adding Rolta would issue a detailed response to the report to exchanges.

Glaucus has issued such reports in the past, too. For instance, Singapore-listed Chinese company Minzhong Food Corporation had came under fire in 2013 when Glaucus alleged the company misled investors about sales. Minzhong had rejected the allegations. Besides, again in 2013, the Hong Kong-listed stock of China’s child skincare product company Prince Frog International fell after Glaucus reported holes in the company’s sales figures, Reuters reported.

Last May, Taiwan’s Financial Supervisory Commission had said it would file a suit against Glaucus for “maliciously spreading rumours” against Asia Plastic. Glaucus had initiated coverage of Asia Plastic late April with a “strong sell” rating, saying its financial reports were inflated.