The Tatra truck scandal, which took the country’s defence establishment by storm, is hitting the share prices of corporate houses linked to it.
The share prices of BEML and Vectra Group-promoted Global Vectra Helicopters Ltd (GVHL) have taken a beating since March 27 as the two fell 15 per cent each. BEML operates in the heavy earth moving equipment segment and GVHL runs chopper services, mainly for offshore oil rig companies. While BEML is in the midst of a multi-crore defence scandal, GVHL has received bad publicity as its key promoter, Ravi Rishi, who was also on the board of the company till December 2011, has been linked to the scam.
Market players say the stocks of both companies are facing a situation similar to that of D B Realty and Unitech, beaten down heavily after key officials of the two companies were linked to the 2G telecom scam. Unitech and D B Realty had crashed 50 per cent from their highs as the managing directors of both the companies were put behind bars.
In March, army chief General V K Singh said he was offered a bribe of Rs 14 crore to clear sub-standard Tatra trucks. This opened a can of worms, making traders cautious on BEML, as analysts say the scandal involving the company and its executives could be the next ‘Bofors of India’.
“Traders would want to stay away from BEML till they know where the buck stops over investigations and what could be the proportion of the scam,” said Ajay Pandey, head (institutional equities), ITI Securities.
The main charge against BEML is that it imports a truck for around Rs 40 lakh and sells it to the army at double the cost. This has allegedly been going on for many years, putting in jeopardy BEML’s status as the preferred supplier to the armed forces. Currently, less than 20 per cent of BEML’s business comes from defence orders.
BEML chief V R S Natarajan and Vetra Group’s Rishi are under the Central Bureau of Investigation (CBI) scanner. Another member of Rishi’s family is still on the board of GVHL, which had floated an initial public offering priced at Rs 185 a share in 2006.
The share price of BEML fell from around Rs 668 on March 26 to close at Rs 575 on Wednesday. The stock has touched a low of Rs 554 during this period. The GVHL stock fell from Rs 17.25 to a low of Rs 13 on BSE.
Still, experts believe BEML stock may not be hammered as badly for two reasons. Little of its business comes from defence and the government would not let it sink as it is a public sector undertaking. Despite being a defence public sector undertaking, BEML has, over the years, diversified into non-defence areas. On Wednesday, it derives 42.17 per cent of its turnover from mining and construction business, 36.76 per cent from rail and metro and the balance from other businesses. However, there is a view that with its reputation now tarnished, it will be difficult for it to bid for large orders, even from the defence segment, where the company had big plans. The Life Insurance Corporation of India holds over 10 per cent stake in BEML. Other large shareholders of BEML include General Insurance, Fidelity and various schemes of Reliance and HDFC Mutual Fund.
