Ever since the Ketan Parekh debacle, my mailbox has been crowded with scores of messages about one company -- Shonkh Technologies.
Some messages were worried, others wondered about its future, many pointed out it had a substantial holding by Parekh and the Unit Trust of India; several charged it with being a money-raising machine which had garnered substantial funds from banks and institutions.
It was clear the company needed a closer look. On the face of it, Shonkh would have been just another rapidly growing technology company aspiring to be Infosys or Wipro. But Shonkh was different. The company, promoted by Vivek Nagpal of Padmini Polymers, was pitching even higher.
According to Parekh groupies, the infotech super-company of the future was not Infosys, but Reliance Infocom -- the low key convergence giant-in-the-making, which already employs over 5,000 people and enjoys Mukesh Ambani's obsessive personal attention.
Shonkh Technologies had pitted itself against Reliance Infocom of the future. If this was not dismissed as an idle boast or the usual tall claim about a dotcom-era start up, it was because of the people behind the company. The One Man Army/Big Bull Ketan Parekh.
Parekh had a substantial stake in the company. UTI had given its seal of approval by subscribing to a chunk of equity on a private placement basis although it was a private company. The investment was probably justified on the basis of Shonkh's mega growth plans routinely announced to the press. A sample:
The Times of India, December 2000: Shonkh tied up with Microsoft India to set up a Microsoft Centre of Excellence for e-governance in Gurgaon. It was the second major tie-up by Shonkh that month, the previous one being with Electronic Data Systems to provide services in the e-governance space.
Business Standard, January 2001: Shonkh Technologies, which offered e-governance solutions, drew up plans to invest Rs 1 billion in Hyderabad to set up a software development centre, a smart card application centre and an assembly unit for kiosks, envisaging the creation of 1,500 jobs.
Economic Times, January 2001: The newspaper wrote about the Andhra project and said Shonkh had tied up with EDS to provide e-governance solutions; it would bring its expertise and skills to the state in the areas of smart optical cards, multilingual software solutions and information access kiosks for citizens.
Business Line, February 17: 'If the optical smart card-based solutions developed by Shonkh Technologies International were to be superimposed with the e-governance initiatives of state governments, the all-important G2C (government-to-citizen) interface will never be the same again.' Ravi Krishnamoorthi, director, Shonkh Technologies, told Business Line that the company had lined up a host of e-governance solutions for the Andhra Pradesh government. He also spoke about a smart optical card based e-governance solution for the transport department in Gujarat and a pilot project to convert Nagpur, Pune and Thane into e-districts in Maharashtra.
The reports were just the gloss for the company's fund raising plans. In July 2000, Shonkh's promoters felt the need for public listing. They went for a reverse merger with a listed shell company, Shreejee Yatayat India Ltd, and was listed on several stock exchanges barring the National Stock Exchange.
Soon enough it planned an IPO to raise Rs 750 million and raised big sums through private placement. It was also a big borrower from banks and financial institutions.
By November 2000, Shonkh decided to raise Rs 1.70 billion through a preferential allotment of equity shares at around Rs 240 per share. Ketan Parekh, reported one newspaper, was expected to increase his stake from 13 per cent to 18 per cent.
The money was to part finance a Rs 3.5 billion smart card order it had bagged from the Gujarat government and new orders which were expected from three, four other states, the company said. At that time it claimed an order book of Rs 6 billion from various state governments including Gujarat, West Bengal, Karnataka and organisations such as the Life Insurance Corporation, ITI, Indian Railways and banks.
Until February this year, things went smoothly. The results for the third quarter ended December 2000 showed a 115 per cent in sales turnover and 350 per cent in net profit for the third quarter ended December 31, 2000 over the previous corresponding period. Its net profit was Rs. 81.7 million on sales of Rs 419.5 million.
At its height Shonkh's share price touched a peak of Rs 463 plus. All that changed in February. Ketan Parekh then held a stake of over 19 per cent through a series of companies -- Panther Fincap (7.72 per cent plus 1.99 per cent), Classic Credit & Share Brokers (5.71 per cent), Panther Investrade (1.71 per cent), Triumph International (1.59 per cent) and Triumph Securities (0.39 per cent).
The curious Kallar sub-account of Credit Suisse First Boston, which market sources say would belong to associates of the Big Bull, also held a 4.28 per cent stake in Shonkh. Another 3.14 per cent is held by Vidyut Investments, the Ranbaxy investment company, which held a hefty chunk of Global Trust Bank and sold the shares to three Nirma investment companies.
The main promoter, Vivek Nagpal, seems to hold his shares through two investment companies -- Advance Hovercraft and Ankur Cultivators -- both holding 11 per cent each. This would mean that Parekh's stake -- or at least the equity over which he had some control -- would be as much as the promoter.
In February when Parekh began to have payment problems, he is supposed to have dumped his entire holding. UTI, which had a 4.5 per cent stake at the end of February (through UTI and India Growth Fund), also exited at a profit. Informed sources say UTI acquired its shares at around Rs 130 each and got out at Rs 300, booking a hefty profit.
Sure enough, the continuous collapse of the Shonkh share price reflects the changed circumstances. The price has fallen from its 52-week high of Rs 463 to a paltry Rs 39.55 on April 16. Some of its executives have quit and an e-mail I sent to the CEO elicited no response.
What happens to Shonkh when its glamorous props have dumped the stock? The story is not over, yet. According to sources, Parekh may not have dumped his shares on the market.
Some usually well-informed sources believe he sold his stake to a business house, which is building its strength in the infotech business. The shares were sold in exchange for the broker's bail-out well before the Bank of India episode ruined him.
At the moment nobody is talking, because it is the wrong time to confess dealing with Ketan Parekh. The coming months could spring some fresh surprises.