Tuesday, 27 December 2016

The Lure of the Celebrity Investment


India's Bollywood star, Amitabh Bachchan was in the news a year and a half back for buying a 0.51% stake in Nitin Fire Protection (NSE:NITINFIRE) for Rs. 42.99 a share. The stock saw frenzied buying on the news and surged 9.9% to close at Rs. 47.05.

Eighteen months later the stock is languishing at Rs. 23.50 a share. ( a notional loss of 49% for Mr. Bachchan's fans and 45% for Mr. Bachchan, if he has still kept the shares).

Investors in the stock would have done well to read the Annual Report and the Audit Reports. The Qualified Auditor's Report states "material weaknesses have been identified in the operating
effectiveness of the Company’s internal financial controls over financial reporting as at March 31, 2016 with respect to provision for diminution in the value of an investment; provision for a claim on a derivative contract; determination of terms of purchase of items of inventory and underlying documentation relating to internal movement of items of inventory .. which could potentially impact the related account balances when determined and/or recognised."

In short, we don't know why and what figures Management in their so called best estimate has managed to allocate to items in the financial statements.

The above Qualified opinion for 2016 was in continuation to the Qualified report for 2015.The 2015 Audit Report had mentioned that the Auditors were not able to comment on the impairment of investment in WNCPL worth Rs. 45.78 crores.


Further the Annual Report for 2016 mentions that the management is unable to comment on the above impairment and the carrying value was carried over to Non Current Investments. 

So if the Auditors are unable to comment; Management is unable to comment; what inference should the shareholders draw? Unable to stick with such a company?

The Economic Times recently had a series on celebs and their investments. The rational investor would do well to stick to the fundamentals and ignore the Bollywood "dhamaka".

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